Judgment:
Jagannadha Rao, J.
1. The petitioner-paper mills entered into a preliminary agreement as stated in G.O.Ms. No. 681 (Forests and Rural Development), later confirmed by a regular deed dated 20th July, 1977 agreeing to fell, collect and remove the bamboos in three divisions of forest area in the State, paying a royalty of Rs. 60 per tonne. Each year, one lakh tonnes are to be removed for 20 years during the period 1st October, 1975 to 30th September, 1995. The question is whether the preliminary contract or the regular contract amounts to 'sale' of bamboos attracting the provisions of the Andhra Pradesh General Sales Tax Act, 1957 read with the Indian Sale of Goods Act, 1930.
2. Under his proceedings dated 13th September, 1983 the Divisional Forest Officer, Bamboo Weighment, Rajahmundry informed the petitioner-company that unless a sum of Rs. 17,05,295.55, being the sales tax on the royalty for the period from 1st November, 1979 to 31st August, 1983 is paid with interest and surcharge, the same would be recovered as arrears of sales tax. Obviously, the said proceeding was issued pursuant to sub-clause (25) of the abovesaid lease deed under which the petitioner agreed to pay all taxes payable under the laws in force from time to time. The petitioner has questioned the said proceeding in this writ petition impleading the State of Andhra Pradesh as the 1st respondent and the Divisional Forest Officer as the 2nd respondent.
3. It is contended by the learned counsel for the petitioner, Sri K. Srinivasa Murthy, that the present case is squarely governed by the judgment of the Supreme Court in State of Orissa v. Titaghur Paper Mills Co. Ltd. [1985] 60 STC 213. It is pointed out that the Supreme Court judgment considered a similar agreement entered into by a paper mill and came to the conclusion that there was no 'sale' of the bamboos under the contract inasmuch as the goods were not put in a deliverable state at the time of contract and since the purchases were governed by the provisions of the Forest Laws of the State. The Supreme Court case, it is further pointed out, dealt not only with the case of standing timber but also with the future growth of bamboo and that so far as bamboo contract was concerned, the Supreme Court went further and held that the contract conferred upon the paper mill a benefit to arise out of the land which was in the nature of grant of a profit a prendre, and that such a right was a right in immovable property. On the basis of the above said judgment, it is argued that in the present case the contract relating to bamboos is not exigible to sales tax.
4. On the other hand, it is contended by the learned Government Pleader, Sri A. Venkataramana, that the judgment of the Supreme Court is not applicable to the facts of the present case, that the agreement is a 'long-term selling arrangement' for 20 years that there is a sale every year of bamboo of a quantity of one lakh tonnes and that there is a 'sale of goods' attracting the provisions of the sales tax law. It is pointed out that each year the bamboo coupes are not constant but go on changing as identified by the Forest Department and that there is no such annual earmarking of the bamboo coupes in the Orissa case decided by the Supreme Court. It is also pointed out that the actual cutting of the bamboo trees up to a height is also regulated by the Forest Department and that there is no similar provision in the Orissa case. It is further argued that the contract does not relate to bamboo which would grow in future and that the agreement related, each year, to bamboo which had already grown up to a particular height, and such a transaction amounted to a 'sale'. It is, therefore, contended that the Supreme Court judgment is not applicable to the facts of the present case.
5. On the basis of the above contentions two points arise for consideration :
Point No. 1 : Whether under the preliminary contract evidenced by G.O.Ms. No. 681 (Forests and Rural Development) dated 19th September, 1975 or the regular contract dated 20th July, 1977, there is any 'sale' of the bamboos, as defined in the Indian Sale of Goods Act, 1930 and the Andhra Pradesh General Sales Tax Act, 1957 either on 19th September, 1975 or on 20th July, 1977
Point No. 2 : Whether there is a 'contract of sale' or 'sale' of bamboo - if not as stated under point No. 1, - at any point later, when each year one lakh tonnes of bamboos are put in a deliverable state and removed by the petitioner-company, during the 20 years period from 1st October, 1975 to 30th September, 1995 In other words, what is the nature of the contract
Point No. 1 : In this discussion under point No. 1, we assume that the contracts in question are contracts of sale. This discussion is subject to our findings on point No. 2. For the purpose of deciding this point, it is necessary to analyse the provisions of the contract, the provisions of the statute and the judgment to tie Supreme Court.
6. Terms of the contract :
At the outset, it is necessary to refer to the various important clauses of the agreement dated 20th July, 1977 entered into by the petitioner-company and the Government of Andhra Pradesh. Clauses I to VII are contained in the preamble to the agreement while the regular agreement whose terms are mentioned in clause VII are 40 in number. The agreement contains a schedule showing that the subject-matter thereof is three areas of forest land consisting of Kakinada, Visakhapatnam and Eluru Divisions. The agreement describes the Governor of Andhra Pradesh as the 'lessor' and the petitioner-company as the 'lessee'. Clause II provides that the lessor had agreed to allocate about one lakh tonnes of bamboos annually and to tentatively reserve the bamboo forest areas in the divisions mentioned in the schedule for supply of these quantities to the mills for the manufacture of paper and that the lessee had agreed to meet its additional requirements of raw material by using hard, soft wood for running the mills to their full capacity. Clause III mentions that the lessee has been given the right to 'fell, collect and remove the bamboos' in accordance with the silvicultural and management prescriptions of the working plan in force from time to time and that the lessee had agreed to pay 'royalties' at Rs. 60 per tonne of bamboos 'felled and collected' from 1st October, 1975 and that the rates of 'royalty' thereafter would be subject to revision by the lessor at intervals of not less than five years. Under clause IV, the lessee agreed to pay to the lessor the annual minimum royalty for 85 per cent of one lakh tonnes of bamboos irrespective of whether the lessee would have worked or not, the coupes actually permitted by the lessor to be exploited by the lessee during the year, due to his failure to work. Under clause V, it was agreed to deposit at the beginning of the each year an amount of Rs. one lakh in cash as security for the due performance of the obligations of the lessee as provided in the terms thereafter mentioned. Clause VI stated that the agreement will be in force for a period of 20 years from 1st October, 1975 up to 30th September, 1995. As already stated above, the main lease conditions are enumerated in the 40 sub-clauses of clause VII of the contract dated 20th July, 1977. Sub-clauses (1) to (5) of the agreement are important and we shall extract them :
'(1) The lessee shall during the period of this agreement be entitled to fell, collect, store and remove, subject to the conditions and restrictions mentioned below all those stocks of bamboos now growing, or are likely to grow on the lands in the leased areas mentioned in the schedule other than those from the plantations, all or any of the stock to the removal of which any person now or may at any time or times hereafter be entitled under the provisions of the A.P. Forest Act, 1967, or under any rule or proceedings of the Forest Department of the Government of Andhra Pradesh (hereinafter called 'the Government') and those bamboos hereinafter specially reserved for felling and removal in accordance with the silvicultural requirement and prescriptions of the working plan that may be revised from time to time by the Forest Department.
(2) Subject to item (3) below the lessee shall pay a royalty at the rate of Rs. 60 per tonne for bamboos felled and collected from 1st October, 1975 the rate of royalty being liable to be revised by the lessor from time to time at an interval of not less than 5 years.
(3) The lessee shall pay an annual minimum royalty equal to 85 per centum of royalty on 1,00,000 tonnes of bamboos irrespective of whether the lessee felled and collected the said quantity or not and shall deposit rupees one lakh as security for the due performance of the obligations herein contained.
(4) The lessee shall be intimated one year in advance of the coupes to be worked by him situated in any or all of the divisions indicated in the schedule and the lessee shall work in the leased areas in accordance with the prescriptions of the working plans in force and any subsequent changes made from time to time. The lessee shall work only one coupe every year in each of the felling series prescribed in the working plan and allotted under this contract. Each coupe is demarcated by natural boundaries, such as ridges or streams or by artificial boundaries, such as roads and paths as indicated in the working plan. The lessee shall, before he starts works in the coupe, furnish to the Range Officer concerned, a written statement to the effect that he has taken charge of the coupe in the leased area. The lessee shall also report within a period of fifteen days, after taking charge about any irregularities noticed in the area.
(5)(a) The lessee shall commence work from one corner of the coupe and shall proceed with the felling evenly throughout the coupes .......
(i) refraining from felling all immature culms less than one year old;
(ii) reserving at least 6 mature culms over one year old in each clump;
(iii) felling of culms permitted to be extracted being maintained to be not below the second mode from ground level and in any case not higher than 30 cms. from the ground level; and
(iv) removing the whole of a cut culm and its branches from every clump completely.
(b) The felling rules are subject to modifications that may be made by the Forest Department in accordance with the silvicultural requirements and working plan prescriptions.
(c) The lessee shall convert all bamboos as and when felled into billets approximately two metres in length.
(d) The lessee shall not engage or employ labour or cartment already employed by the Forest Department for any work under this agreement without obtaining the previous written permission of the Range Officer.'
7. Sub-clause (6) of clause VII states that the working season of each of the annual coupe of the series is from the first of October of the year to 30th of the September of the succeeding year but that the lessee should not cut any bamboo during the monsoon period from 1st July to 30th September though he may remove the felled material and form roads in the coupes to be leased in the subsequent lease year during this period. Sub-clause (7) deals with inspection by the Range Officers while sub-clause (8) provides that on completion of the work in each coupe, the lessee should give written notice to the Range Officer who shall within 30 days thereafter inspect the work and take possession of the coupe and submit a report. Thereafter, the Divisional Forest Officer can issue orders to the lessee to pay compensation for the damages, if any, and may levy any fines for irregularities committed by the lessee. Sub-clause (9) deals with rebate on annual minimum royalty and states that the lessor reserves the following rights in the leased area : (i) to extract bamboos for departmental use; (ii) to permit the local free grantees residing near about and around the leased area and who are victims of fire, floods or earthquake, etc., to remove the bamboos in accordance with rules; (iii) to agree to grant mineral concessions; (iv) to permit the local inhabitants and buroods to remove bamboos; and (v) in lieu of the supplies made for any of the items indicated above, the minimum royalty may be reduced proportionately. Sub-clause (10) deals with the conditions under which the lessee can claim compensation. Sub-clause (II) is important and provides that the lessee, even before delivery of the bamboos cut, will be liable for loss by theft, fire and floods and other causes or natural calamities. It further states that the bamboos shall be considered to have passed into the possession of the lessee 'for the purpose of that clause' from the time they are cut and royalty shall be payable for all bamboos that have been cut. Sub-clause (12) deals with the prohibition against the lessee doing certain acts unless expressly permitted. The lessee shall not dispose of or sub-let the leased area or any part thereof. Sub-clause (13) is important and it provides that the lessee may, with the previous permission of the Divisional Forest Officer construct roads, bridle paths, storehouses and depots, etc., in the leased areas for the economical exploitation of bamboos. Sub-clause (14) states that on the expiry of the lease all structures and communications put up by the lessee shall become the property of the Government. It is provided in sub-clause (15) that the petitioner-company is to use the bamboo only for the purpose of manufacture of paper. Sub-clause (15)(a) states that the lessee shall remove and weigh all stocks of the bamboos that are already cut from the leased area within a period of six months after the expiry of the annual lease year without payment of any penalty. If there is any delay on the part of the lessee the department can levy penalties. It is further provided that as and when the stocks are weighed at the weighing point, royalty prescribed under the agreement shall be collected in addition to the penal fees. Sub-clause (16) deals with the transport of bamboos by the lessee. It says that the lessee shall not remove or permit to be removed from the leased area or any of his authorised depots or land, any of the stock except under permits issued by the department. Sub-clause (19) states that the removals of the felled bamboos from the leased area shall be made only by the routes approved by the Divisional Forest Officer from time to time. Sub-clause (20) states that the lessee shall not establish any depot outside the annual coupes without specific permission of the Divisional Forest Officer. Sub-clause (22) permits the Forest Department to close areas wherever there is bamboo flowering, and prevent cutting of bamboos in such areas. It also states that the bamboos shall not be cut in the year of their flowering but could be cut after the bamboos shed their seed and the cutting shall be made by the lessee in the areas indicated by the Divisional Forest Officer. Sub-clause (23) provides that the royalty payable for dry and dead bamboos removed from outside the current year of coupes shall be paid as indicated by the Divisional Forest Officer. Sub-clause (24) reserves the lessor right to fell any bamboo forest for the purpose of raising plantations. Sub-clause (25) states that the lessee shall be liable to pay all taxes under the laws in force from time to time. Sub-clause (28) states that if there is any fire or forest offences in the leased area the lessee shall render every assistance to the lessor in that connection. Sub-clause (29) is important and states that the lessee shall at all times comply with the provisions of the A.P. Forest Act, 1967 and all rules made by the Government thereunder and the provisions of this agreement should be deemed to be subject to the provisions of the said Act, as revised from time to time. Sub-clause (31) deals with the accounts and the payments to be done by the lessee. Sub-clause (34) states that all amounts due by the lessee could be recovered as arrears of land revenue as provided in the A.P. Forest Act 1967. Sub-clause (37) states that the lessee shall not claim any compensatory areas in lieu of the areas assigned, alienated, disreserved or otherwise excluded from the leased areas by the lessor. Sub-clause (39) is important and states that the lease could be terminated by the lessor in the case of illicit fellings or non-payment of dues or serious irregularities committed by the lessee. As already stated the schedule refers to the Kakinada, Visakhapatnam and Eluru Divisions as being the subject-matter of the lease.
8. Analysing the important terms of the abovesaid lease-deed, it will be seen that for the period 1st October, 1975 to 30th September, 1995, the petitioner-company was given a right to fell, collect and remove the bamboos 'in accordance with the silvicultural prescriptions of the working plan' in force from time to time and the lessee is to pay a 'royalty' of Rs. 60 per tonne of bamboos felled and collected from 1st October, 1875 subject to revisions in the rate of royalty from time to time. Each year, the petitioner can remove one lakh tonnes of bamboos for 20 years. A minimum royalty for 85 per cent of one lakh tonnes of bamboos is payable irrespective of whether the lessee would have worked or not the coupes permitted to be exploited. The bamboos to be cut and felled are 'those stocks of bamboos now growing or are likely to grow' on the lands in the 'leased areas mentioned in the schedule'. The schedule describes the areas as the three Forest Divisions in Kakinada Division, Visakhapatnam Division and Eluru Division (part). The stocks to be removed are stocks to which any person 'now or may at any time hereafter' be entitled under the provisions of the 'A.P. Forest Act, 1967 or any rule or proceedings of the Forest Department' in accordance with the silvicultural requirements and prescriptions of the working plan as revised from time to time. The coupes to be felled are to be specified one year in advance, in any or all of the divisions, indicated in the schedule and the lessee is to work the leased areas in accordance with the working plans in force. The lessee shall work only one coupe every year in each of the felling series prescribed in the working plan. Each coupe is demarcated by natural or artificial boundaries. The lessee cannot fell 'immature culms' less than one year old, reserve at least 6 'mature culms' over one year old in each clump; fell culms not below the second mode from ground level and in any case not higher than 30 cms. from the ground level. The felling rules are subject to the modifications that may be made by the Forest Department in accordance with the silvicultural requirements and working plan prescriptions. The working season is from 1st October to 30th September but no cutting is permitted in the monsoon season from 1st July to 30th September.
9. Flowering bamboos are protected and cannot be felled. The lessee is, however responsible for theft, fire or flood damage to the bamboos before royalty is paid and they are removed and the 'bamboos shall be considered to have passed into the possession' of the lessee 'for this purpose'. The lessee can construct roads, paths, storehouses and depots with the permission of the Forest Department.
10. On completion of work in each coupe, the lessee is to give notice to the Forest Department who will take possession of the coupe. The lessee shall remove and weigh all stocks of bamboos within 6 months after the expiry of annual lease year, and if there is delay penalties can be levied. As and when such stocks are weighed at the weighing point, royalty is to be collected. The transport of bamboos is fully regulated and controlled by the Forest Department by issue of transit permits. All removals of felled bamboos are to be made through authorised routes. The lessee shall pay all taxes under the laws in force from time to time. The lessee shall, at all times, comply with the provisions of the A.P. Forest Act, 1967 and rules made thereunder by the Government. Accounts are to be maintained. Monies due can be recovered as arrears of land revenue and the contract can be terminated by the lessor in case of illicit fellings or non-payment of dues or serious irregularities.
11. Relevant statutory provisions :
The question as to whether these terms of the contract amount to a 'sale' attracting the provisions of the Andhra Pradesh General Sales Tax Act, 1957 is to be now decided. There is an elaborate definition of 'sale' in section 2(n) of the said Act. Before its amendment by Act 18 of 1985 on 1st July, 1985, it read (in so far as is material for our purpose) as follows :
'Section 2(n) : '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 for any other valuable consideration, and includes any transfer of materials for money consideration in the execution of a works contract, provided that the contract for a transfer of such materials can be separated from the contract for services and the work done, although the two contracts are embodied in a single document or in the supply or distribution of goods by a society (including a co-operative society), club, firm or association to its members, but does not include a mortgage, hypothecation or pledge of, or a charge on goods.
Explanation 1 : .....................
Explanation II : (a) Notwithstanding anything contained in the Indian Sale of Goods Act, 1930 (Central Act 3 of 1930), a sale or purchase of goods shall be deemed, for the purpose of this Act, to have taken place in the State, wherever the contract of sale or purchase might have been made, if the goods are within the State.
(i) in the case of specific or ascertained goods, at the time the contract of sale or purchase is made; and
(ii) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale or purchase by the seller or by the purchaser, whether the assent of the other party is prior or subsequent to such appropriation;
(b) where there is a single contract of sale or purchase of goods situated at more places than one, the provisions of clause (a) shall apply as if there were separate contracts in respect of the goods at each of such places,
Explanation III : .....................'
12. The word 'goods' in section 2(h) of the Andhra Pradesh General Sales Tax Act, 1957 (before amendment by Act 18 of 1985) read as follows :
'Section 2(h) : 'Goods' means all kinds of movable property other than actionable claims, stocks, shares and securities, and includes all materials, articles and commodities including those used or to be used in the construction, fitting out, improvement or repair of movable or immovable property, and also includes all 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 and also includes motor spirit.
Explanation : .....................'
13. From the aforesaid definition in the Andhra Pradesh General Sales Tax Act, 1957 of 'sale', it will be seen that there must essentially be a transfer of the 'property' in 'goods' for consideration. Explanation II is important and it states that notwithstanding anything contained in the Indian Sale of Goods Act, 1930, there is a sale or purchase of goods, if the goods are within the State, and (i) in the case of specific or ascertained goods, at the time the contract of sale or purchase is made; and (ii) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale or purchase by the seller or by the purchaser, whether the assent of the other party is prior or subsequent to such appropriation.
14. Though the definition of 'sale' in the Andhra Pradesh General Sales Tax Act, 1957 contains a non obstante clause in explanation II, it is now well-settled that the expression 'sale of goods' is a term of well-recognised import in the general law relating to sale of goods and also in the legislative practice relating to that topic and, therefore, that expression must be interpreted when used in entry 48 of List II of the Seventh Schedule of the Government of India Act, 1935 as having the same meaning as in the Indian Sale of Goods Act, 1930. In State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [1958] 9 STC 353, the Supreme Court held that any attempt to give the expression 'sale', 'goods' or 'sale of goods' an artificial meaning or an enlarged meaning or to bring within their scope what would not be comprehended within it, would be ultra vires and unconstitutional. The same view is accepted by the Supreme Court with regard to entry 54 in the State List under the Constitution of India. The history of the law in this regard is traced fully again in State of Orissa v. Titaghur Paper Mills Co. Ltd. : [1985]3SCR26 .
15. While dealing with the question whether there is a 'sale' or 'transfer of property in goods' and considering the definition of these words 'sale' and 'goods' in the Andhra Pradesh General Sales Tax Act, 1957, it therefore, becomes necessary to advert to certain definitions in the Indian Sale of Goods Act, 1930.
16. Section 2(7) defines 'goods' and reads as follows :
'Section 2(7) : '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.'
17. In section 4 of the Indian Sale of Goods Act, 1930, sale and agreement to sell are defined as follows :
'Section 4 : Sale and agreement to sell. - (1) 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. There may be a contract of sale between one part-owner and another.
(2) A contract of sale may be absolute or conditional.
(3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some conditions thereafter to be fulfilled, the contract is called an agreement to sell.
(4) An agreement to sell becomes a sale, when the time elapses or the conditions are fulfilled subject to which the property in goods is to be transferred.'
18. It will thus be noticed that there is an essential distinction between a contract of sale and a sale of goods. The distinction is based upon the question whether the 'property in the goods' has passed from one person to another.
19. On the question of passing of 'property' in the goods vis-a-vis specific, ascertained or unascertained goods sections 19 to 23 (section 24 is not relevant in the present case) are the most important. They read as follows :
'Section 19 : (1) Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred.
(2) For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case.
(3) Unless a different intention appears, the rules contained in sections 20 to 24 are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer.
Section 20 : Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment of the price or the time of delivery of the goods, or both, is postponed.
Section 21 : Where there is a contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them into a deliverable state, the property does not pass until such thing is done and the buyer has notice thereof.
Section 22 : Where there is a contract for the sale of specific goods in a deliverable state, but the seller is bound to weigh, measure, test or do some other act or thing with reference to the goods for the purpose of ascertaining the price, the property does not pass until such act or thing is done and the buyer has notice thereof.
Section 23(1) : Where there is a contract for the sale of unascertained or future goods by description and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller, the property in the goods thereupon passes to the buyer. Such assent may be expressed or implied, and may be given either before or after the appropriation is made.'
20. We shall now analyse the Supreme Court judgment in State of Orissa v. Titaghur Paper Mills Co. Ltd. [1985] 60 STC 213 under three heads :
(A) General discussion (timber and bamboo contracts);
(B) Timber contracts; and
(C) Bamboo contracts.
21. Supreme Court judgment from Orissa : Analysis.
(A) General discussion (timber and bamboo contracts) : In State of Orissa v. Titaghur Paper Mills Co. Ltd. [1985] 60 STC 213 the Supreme Court, after referring to the distinction between 'sale' and 'agreement to sell' and the meaning given to these words in Benjamin on Sale of Goods, adverted to sections 20 to 23 (see pages 242, 243 of 60 STC) and then considered the matter first from the point of transfer of property in specific goods and observed (page 244) : 'such purchase would be complete when the standing trees or bamboos are specific goods, that is, when they are identified and agreed upon at the time the contract of sale is made, and the contract is unconditional and further such standing trees or bamboos are in a deliverable state, that is, nothing remains to be done except for the buyer to enter upon the land of the seller and to fell and remove the trees or bamboos, as the case may be, without any let or hindrance. If these factors exist, then unless a different intention appears either from the terms of the contract or can be inferred from the conduct of the parties and other circumstances of the case, the property in such standing trees and bamboos would pass from the seller to the buyer when the contract is made and it is immaterial whether the time of payment of the price or the time of taking delivery of standing trees agreed to be severed or bamboos agreed to be severed or both is postponed'.
22. Their Lordships also considered the matter from the point of transfer of property in 'unascertained goods' (page 244) and observed : 'If, however, there is an unconditional contract for the sale of standing trees or bamboos which are unascertained, then unless a different intention appears, the property in them would be transferred to the buyer when the standing trees and bamboos are ascertained and it would be equally immaterial whether the time of payment of the price or the time of taking delivery of standing trees agreed to be severed or bamboos agreed to be severed or both is postponed' and concluded :
'In either event, the sale and purchase would be completed before severance as under the impugned provisions there has to be a completed purchase of standing trees or bamboos agreed to be severed for the impugned provisions to apply.'
23. (B) Timber contracts :
After laying down the above general principles of law, their Lordships took up the 'timber contracts' separately (page 250) and considered the various terms and conditions thereof and gave their finding (at page 258). They observed that the 'timber contracts were not unconditional contracts for the sale of goods in a deliverable state and the property in the trees specified in Schedule I of the contract, therefore, did not pass to the respondent-firm when each of the contracts was made. As mentioned earlier, the timber contracts are in the prescribed form for all forest produce annexed to the Forest Contract Rules and the provisions of the Orissa Forest Act and the Forest Contract Rules are expressly made applicable thereto ...... it did not become an unconditional contract for the sale of specific goods in a deliverable state for the respondent-firm had no right to sever the trees and take them away before it had complied with the other conditions of the contract set out above ...... under rule 12 of the Forest Contract Rules, the respondent-firm had to furnish a Coupe Declaration Certificate ...... under rule 22 ..... to register ...... its property mark or trade mark ............ could not commence any work unless it had given the required security deposit ..............' and concluded : 'That the property in the trees did not pass to the respondent-firm while the trees were standing is also shown by the fact that the Divisional Forest Officer or the concerned Range Officer had the power to stop further removal of the felled trees until the respondent-firm had paid the amount ............ and it was further open to the Divisional Forest Officer or the concerned Range Officer to stop further work if there was a default in payment of any installment ............ and the contract could also be terminated under rule 33 for such default.'
24. From these features, it was pointed (page 259 of 60 STC) that 'if the property in the trees had passed to the respondent-firm' the further work or removal could not be stopped by the Forest Department and 'the only remedy open to the seller would be to sue for the balance of the price'. Under rule 33 of the Orissa Rules the contract could itself be terminated, and the contractor would forfeit his right to all further trees to be severed if it committed any breach of the conditions. The mode of felling the trees was also not of the choice of the contractor but one prescribed by rule 20 of those Rules. Even after felling the trees, the Orissa contractor was not entitled to remove the felled trees by any route which he liked but only by prescribed routes and subject to permits for transport. Under rule 16 of the Orissa Rules, the felled trees could be removed only to prescribed depots. All trees had to be felled and removed within the contract period. On that basis, their Lordships observed that the 'timber contracts were not transactions of sale or purchase of standing trees agreed to be severed. They were merely agreements to sell such trees. As pointed out above, each stage of the felling and removal operations was governed by the Forest Contract Rules and was under the control and supervision of the Forest Officers. The property passed to the respondent-firm only in the trees which were felled, that is, in timber, after all the conditions of the contract had been complied with and after such timber was examined and checked and removed from the contract area'. Thus, at the stage of the contract to fell and remove, there was no transfer of property in the timber contracts in the case before them.
25. (C) Bamboo contracts :
Coming to the bamboo contracts entered into by the Titaghur Paper Mills (pages 268 to 272), their Lordships considered the terms of the contract and concluded (at page 272) as follows : 'While discussing the subject-matter of the impugned provisions, we have already held that they apply where there is a completed contract of purchase and the property in the goods which are the subject-matter of the contract passes from the seller to the buyer when the contract is made. In other words the purchase would be complete when the standing trees or bamboos are specific goods, that is, when they are identified and agreed upon at the time the contract of sale is made, and the contract is unconditional and further such standing trees or bamboos are in a deliverable state, that is, nothing remains to be done except for the buyer to enter upon the land of the seller and to fell and remove the trees or bamboos, as the case may be, without any let or hindrance. The very submission of the appellant with respect to when the property passed to the respondent-company in the case of the bamboo contract is sufficient to show that the impugned provisions cannot have any application to the case. The bamboo contract like the timber contract is also made subject to the Forest Contract Rules and while dealing with the timber contract we have pointed out that by reason of the operation of those Rules property in the trees passed to the forest contractor after the trees were felled and taken to the depots at inspection points and there checked and examined and thereafter removed from the contract area. The same position would apply to the case of the bamboo contract assuming for the sake of argument that it is a contract of sale of goods.'
26. Is there a 'sale' under the present contract
27. The question whether there is a 'sale' under the contract dated 20th July, 1977 has to be decided on the basis of the (i) terms of the contract, (ii) the statutory provisions and (iii) the principles laid down by the Supreme Court in State of Orissa v. Titaghur Paper Mills Co. Ltd. [1985] 60 STC 213 above referred to.
28. The contract was for the period 1st October, 1975 to 30th September, 1995, for 20 years and permitted the petitioner-company to fell, collect, store and remove the stocks of bamboos then growing or were likely to grow in the 'leased areas mentioned in the schedule'. The schedule indicates three forest divisions. Each year one lakh tonnes are to be cut at the bamboo coupes specified by the Forest Department, subject to the silvicultural requirements and prescriptions of the working plan. Only mature bamboos in the area specified and of a particular height were to be cut. They were not to be removed from the forest area unless permitted in accordance with the provisions of the A.P. Forest Act, 1967 and Rules or proceedings issued thereunder and only after weighment and the 'royalty' or other penal levies of fees were paid. The contract could be terminated for illicit felling or non-payment of dues, or for serious irregularities. Cutting of trees further could be stopped for the above reasons or to enable the department to fulfil its statutory obligations or in respect of rights reserved under the contract. Removal had to be through the routes nominated by the Forest Department. There is also a provision to pay a minimum amount of royalty.
29. In our view, the above terms are, in material particulars, absolutely similar to the terms in the case decided by the Supreme Court in State of Orissa v. Titaghur Paper Mills Co. Ltd. [1985] 60 STC 213 and particularly with the terms of the bamboo contracts in that case, which we have extracted earlier in detail. On the date of the contract, i.e., 20th July, 1977 or even on the date of the 'preliminary contract' mentioned in clauses I to VI of the preamble [which are drawn from the G.O.Ms. No. 681 (Forests and Rural Development & For. Ill) dated 19th September, 1975], there is no 'sale' of goods. Assuming, as already stated, that the 'bamboos' which are not severed can be treated as 'goods' under section 2(h) of the Andhra Pradesh General Sales Tax Act, 1957 and section 2(7) of the Indian Sale of Goods Act, 1930 - falling under 'growing crops ............ and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale' - still, the other tests laid down by the statute and the Supreme Court have to be satisfied. If on the date of the preliminary contract on 19th September, 1975 or on the date of execution of the regular contract on 20th July, 1977, these goods were to be treated as 'unascertained goods', no property in them will get transferred unless and until the goods are ascertained (section 18 of the Indian Sale of Goods Act). If the 'goods' are to be treated as specific or ascertained goods either on 19th September, 1975 or on 20th July, 1977, the passing of property depends on the intention of the parties to be gathered as stated in sections 20 to 24 of the Indian Sale of Goods Act, 1930. Under section 20, in the case of specific goods, there must be an unconditional contract in respect of such goods in a 'deliverable' state, whether the time of payment of the price or the time of delivery of the goods or both, are postponed. Again under section 21, if the goods are to be treated as 'specific goods', and if the seller is bound to do something to the goods for the purpose of putting them in a deliverable state, the property does not pass until such thing is done and the buyer has notice thereof. Section 22 also deals with 'specific goods' in a deliverable state and where the seller is bound to weigh, measure, test or is to do some other act or thing with reference to the goods for the purpose of ascertaining the price, the property does not pass until such act or thing is done and the buyer has notice thereof. Treating the goods as 'unascertained' on 19th September, 1975 or on 20th July, 1977, the further requirement is that they must be in a deliverable state and the property passes when the goods are unconditionally appropriated to the contract by the seller with the assent of the buyer or by the buyer with the assent of the seller, such assent being express or implied or given before or after appropriation.
30. It will be noted here that the 'bamboos' are not removable even after they are cut unless they are weighed and the royalty determined and permits granted after the officials are satisfied that there are no illicit fellings, money dues or violations of the terms of the contract or the statute. In such circumstances, it is obvious, that the twenty lakhs tonnes of bamboos were not in a 'deliverable' state either on 19th September, 1975 or on 20th July, 1977. Nor can it be said, even in regard to the one lakh tonnes of bamboos liable to cut each year, that they were in a 'deliverable state' on 19th September, 1975 or on 20th July, 1977. (We shall however consider the annual allotment of one lakh tonnes and nature of the 'royalty' payable under the contract when we come to point No. 2). Inasmuch as the removal of the bamboo is subject to weighment, payment of royalty and also the other terms and conditions of the contract as also the terms of the A.P. Forest Act, 1967 and the Rules or proceedings issued thereunder and the silvicultural and management prescriptions of the working plan, it cannot be said, by any stretch of imagination, that the bamboos were in a deliverable state either on 19th September, 1975 or on 20th July, 1977, and hence, the facts of the case are similar to those in State of Orissa v. Titaghur Paper Mills Co. Ltd. : [1985]3SCR26 and there is no 'sale' as contemplated by the Indian Sale of Goods Act, 1930 either on 19th September, 1975 or on 20th July, 1977 and hence no 'sale' within the purview of the Andhra Pradesh General Sales Tax Act, 1957.
31. It was, however, argued by the learned Government Pleader that the present contract is in the nature of a 'long-term selling arrangement' for 20 years, that there is a sale, every year, of bamboo of a quantity of one lakh tonnes, that the 'coupes' cut each year are not constant and bamboos up to a height cannot be cut and that there is no contract with regard to bamboos which grow in future. It is also argued that there is no lease of the three forest divisions. Reliance is placed on the opening portion of para II of the preamble which starts with the words :
'Whereas the lessor has agreed to allocate about one lakh tonnes of bamboos annually and tentatively reserve the bamboo forest areas in the divisions mentioned in the schedule for supply of these quantities to the mills ............'
32. Reliance is also placed on sub-clause (11) dealing with risk for theft, fire, floods, etc., placed on the lessee before removal.
33. In our opinion, these submissions of the learned Government Pleader, cannot be accepted. Even if there is a 'long-term selling arrangement' in regard to bamboos, there must be a 'sale' of bamboos. Whatever nomenclature is applied unless there is a 'sale' of goods as contemplated by the Indian Sale of Goods Act, 1930, there cannot be a sale liable to sales tax, as held by the Supreme Court. We have shown, after referring to the various clauses in the contract, that there is no 'sale' on 19th September, 1975 or on 20th July, 1977 of the bamboos standing or to grow, inasmuch as the goods are not in a deliverable state. As per the above decision of the Supreme Court, the 'sale' could be said to have taken place only if the buyer was in a position to remove the goods without 'any let or hindrance'. Hence the plea of 'long-term selling arrangement' has no force. The further contention that the 'coupes' in the present case are to be specified year after year and there is no such clause in the Orissa case, is not correct. It is clear (vide pages 268, 269 of 60 STC) that the bamboos therein had to be cut as per the time-table given in the Schedule V and there is a reference to the felling 'series'. Apart from that, we fail to see if there is any relevance of this aspect of the matter, because under sub-clause (1) of clause VII of the contract in the present case, the agreement is to permit the felling and removal in respect of the 'areas' mentioned in the schedule, namely, the three forest divisions and the specification of the coupes each year is within this 'area' and the only rights reserved in favour of the lessor are those specified in the contract and in particular in sub-clause (9) of clause VII. It is also not correct to say that in the Orissa case, there is no provision restricting the cutting of bamboos grown up to a particular height. In the interests of the forests, no Government permits indiscriminate cutting of bamboos. There is naturally prohibition in all States from cutting flowering bamboos. In Orissa, this appears to be contained in the 'cutting rules' (page 269 of 60 STC). The argument that there is no lease of all the three forest divisions does not also appear to be correct having regard to clause II of the preamble saying that the bamboos in the 'forest areas in the divisions mentioned in the schedule' are reserved in favour of the lessee and also in view of sub-clause (1) of clause VII which clearly refers to the right to fell, cut and remove bamboos 'now growing or are likely to grow on the lands in the leased areas mentioned in the schedule.' Nor can any advantage be taken of the opening words of para II of the preamble extracted earlier. It is true that one lakh tonnes of bamboos are 'allocated' each year for twenty years. But these bamboos are not in a ready and deliverable state on 19th September, 1975 when G.O.Ms. No. 681 was issued or on 20th July, 1977 when the contract was signed. We have necessarily to read the terms of the 'lease' in sub-clauses (1) to (40) in clause VII and construe the contract as a whole. Coming to sub-clause (11) of clause VII, it is true that even before the bamboos are removed, the liability in regard to 'theft, fire and floods or other causes' is placed on the company. It is also true that normally such a risk is not placed on the buyer unless the ownership has passed. But it is necessary to bear in mind that that sub-clause (11) specifically states that 'the bamboos shall be considered to have passed into the possession of the lessee, 'paper mills', for the purpose of this clause.' In fact, even in State of Orissa v. Titaghur Paper Mills Co. Ltd. : [1985]3SCR26 , there is a similar clause (see page 259 of 60 STC) and their Lordships stated that if title had not passed to the buyer, the risk cannot be passed 'unless otherwise agreed' (section 26 of Indian Sale of Goods Act) and that this clause is a case where parties have otherwise so agreed for passing of risk before the passing of title. In the present case, this is clear enough from the words 'for the purpose of this clause' mentioned in sub-clause (11). Hence this contention is also rejected.
34. For all the above reasons, we hold that there is no 'sale' of the 'bamboos' either at the time of preliminary agreement dated 19th September, 1975 when G.O.Ms. No. 681 was issued or on 20th July, 1977 when the contract was entered into. We hold that this case is squarely governed by the Supreme Court judgment in State of Orissa v. Titaghur Paper Mills Co. Ltd. [1985] 60 STC 213. Point No. 1 is held accordingly in favour of the petitioner.
35. Point No. 2. - The question is whether there is a 'sale' of bamboos by the State to the petitioner - if not on 19th September, 1975 when G.O.Ms. No. 681 was issued or on 20th July, 1977 when the contract was executed - at any time subsequently, at least after the bamboos are put in a 'deliverable state' in each year in respect of the annual quantities of one lakh tonnes each, and whether the 'royalty' can be treated as sale consideration In other words, what is the nature of the contract
36. It is argued for the petitioner by Sri K. Srinivasa Murthy that the contract created a right to benefits arising out of land, namely, the right to cut and remove bamboos which would grow from the soil coupled with the ancillary rights and thus a grant of profit a prendre (a right in immovable property) and not a 'sale of goods'. On the other hand, it is contended by the learned Government Pleader, Sri A. Venkataramana, that this contention cannot be accepted and that there is a sale of goods.
37. We are of the view that the Supreme Court judgment in State of Orissa v. Titaghur Paper Mills Co. Ltd. [1985] 60 STC 213 is again a direct authority in favour of the petitioner on this point also. The Supreme Court considered in that case, timber contracts and bamboo contracts separately. The question of grant of profit a prendre was considered only in the case of the bamboo contracts. Their Lordships considered the various terms of the bamboo contract and came to the conclusion that it was only a case of grant of profit a prendre and not a case of sale of goods. Inasmuch as we have come to the conclusion on point No. I that the terms of the bamboo contract in the Orissa case are similar to the terms of the bamboo contract in this case, we have to apply the Supreme Court judgment and hold that there is no 'sale of goods' in this case also but only a grant of 'profit a prendre.'
38. We have already pointed out while dealing with point No. 1 that under sub-clause (1) of clause VII, the contract is in regard to the right to fell, collect, store and remove the stocks of bamboos now growing or are likely to grow on the lands in the leased areas. The coupes to be cut are different in each year. The 'lease' was a long-lease for twenty years, allocating one lakh tonnes of bamboo every year. 'Royalty' is payable on the bamboo removed after weighment, subject, of course, to a minimum royalty every year, irrespective of the quantum removed. The bamboo cannot be cut or removed except as provided in the contract and subject to the provisions of the A.P. Forest Act, 1967 and Rules and proceedings issued thereunder and unless the royalty and the penal levies, if any, are paid.
39. The above terms are similar to those in the Orissa case. The Supreme Court summarised the position in that case, on this aspect, as follows. (pages 274-276 of 60 STC).
'Having seen what the distinctive features of a profit a prendre, are, we will now turn to the bamboo contract to ascertain whether it can be described as a grant of a profit a prendre and thereafter to examine the authorities cited at the Bar in this connection. Though both the bamboo contract in some of its clauses and the timber contracts speak of the forest produce sold and purchased under this agreement', there are strong countervailing factors which go to show that the bamboo contract is not a contract of sale of goods. While each of the timber contracts is described in its body as an agreement for the sale and purchase of forest produce', the bamboo contract is in express terms described as 'a grant of exclusive right and licence to fell, cut, obtain and remove bamboos ......... for the purpose of converting the bamboos into paper pulp or for purposes connected with the manufacture of paper .........' Further, throughout the bamboo contract, the person who is giving the grant, namely, the Governor of the State of Orissa, is referred to as the 'Grantor'. While the timber contracts speak of the consideration payable by the forest contractor, the bamboo contract provides for payment of royalty. 'Royalty' is not a term used in legal parlance for the price of goods sold.'
40. Though in the present case, the word 'grantor' is not used, that, in our opinion, does not make any difference. The substance of the right conferred is to be looked into and not the nomenclature adopted. Further, here the words used are 'lessor' and 'lessee'. The following further reasoning given by the Supreme Court is also applicable to the present contract (page 275 of 60 STC) :
'Unlike the timber contracts, the bamboo contract is not an agreement to sell bamboos standing in the contract areas with an accessory licence to enter upon such areas for the purpose of felling and removing the bamboos nor is it, unlike the timber contracts, in respect of a particular felling season only. It is an agreement for a long period extending to fourteen years, thirteen years and eleven years with respect to different contract areas with an option to the respondent-company to renew the contract for a further term of twelve years and it embraces not only bamboos which are in existence at the date of the contract but also bamboos which are to grow and come into existence thereafter. The payment of royalty under the bamboo contract has no relation to the actual quantity of bamboos cut and removed. Further, the respondent-company is bound to pay a minimum royalty and the amount of royalty to be paid by it is always to be in excess of the royalty due on the bamboos cut in the contract areas.'
41. For the aforesaid reasons, we hold that even after 19th September, 1975 when G.O.Ms. No. 681 was issued or after 20th July, 1977 when the contract is executed, there is only a grant of a benefit arising out of land coupled with ancillary rights or only a grant of profit a prendre or a right in immovable property but that there is no contract of sale or sale of the 20 lakhs tonnes of bamboo, nor a contract of sale or sale of one lakh tonnes annually, after they have been put in a deliverable state, i.e., at the time of removal of the bamboo on payment of royalty. We hold on point No. 2 accordingly in favour of the petitioner.
42. We accordingly hold that in respect of the bamboos of 20 lakhs tonnes allocated in the G.O.Ms. No. 681 dated 19th September, 1975 or the 20 lakhs tonnes of bamboos allowed to be felled, collected, stored and removed (bamboo then growing or likely to grow in future) during the period 1st October, 1975 to 30th September, 1995, as per the contract dated 20th July, 1977 there is no 'contract of sale' or 'sale of bamboo' falling within the definition of 'sale' in the Indian Sale of Goods Act, 1930 or the Andhra Pradesh General Sales Tax Act, 1957 and that what is granted to the petitioner is only a 'profit a prendre' or a right in immovable property. The writ petition is allowed as stated above. No costs. Advocate's fee Rs. 250.
43. Writ petition allowed.