Supreme Court Allows Revenue's Appeal in Part and Reverses High Court's Decision that Electricity is Not 'Goods' Under Sales Tax Acts. Electricity is Movable Property and Covered by Definition of 'Goods', Making Electricity Board a Dealer; Supply of Steam Under Works Contract Not Taxable.

Case Note & Summary

The case concerned the taxability under the C.P. & Berar Sales Tax Act, 1947, and the Madhya Pradesh General Sales Tax Act, 1959, of transactions undertaken by the Madhya Pradesh Electricity Board, a statutory body constituted under the Electricity Supply Act, 1948, which was engaged in the generation, supply, and distribution of electricity within Madhya Pradesh. The assessment years covered April 1957 to March 1965. The sales tax authorities sought to levy tax on the Electricity Board's turnover of electricity, coal-ash, specification and tender forms, and supply of steam to a mill, as well as purchase tax on certain goods purchased from unregistered dealers. During the relevant periods, the Electricity Board sold and distributed electric energy to consumers. It also sold coal-ash, a waste product, supplied specification and tender forms on payment, and supplied steam to Nepa Mills. The mill provided water free of cost, and the Board charged a pro-rata cost for converting water into steam, with the mill agreeing to reimburse any loss if full demand was not taken. The Board also purchased goods like Gitti, Murram, and sand from unregistered dealers. The Assistant Commissioner assessed the Board to tax on these transactions. The Deputy Commissioner upheld the assessment, but the Sales Tax Tribunal (Board of Revenue) held that the Board was not a dealer in electricity, coal-ash was not produced for sale, steam supply was an isolated transaction without profit motive, and tender forms were not marketable goods; purchase tax could not be imposed. Both the Commissioner and the Board appealed by reference to the High Court, which held that the Board was not a dealer in electricity, but was a dealer in coal-ash; steam supply was not taxable due to absence of profit motive; tender forms not taxable; and no purchase tax. Cross-appeals were filed in the Supreme Court. The primary questions were (1) whether electricity is 'goods' under the Sales Tax Acts and the Board a 'dealer' in electricity; and (2) whether the supply of steam to Nepa Mills constituted a 'sale' liable to tax. The Commissioner argued that electricity is movable property and within the definition of 'goods', and that the Board's business of selling electricity made it a dealer; that steam supply was a sale. The Electricity Board contended that electricity is not tangible movable property and not goods, and that steam supply was a works contract, not a sale, and that no profit element was involved. The Supreme Court examined the definition of 'goods' under the two Acts, which included all kinds of movable property except actionable claims. It held that the term 'movable property' must be interpreted broadly and not confined to tangible objects. Electricity possesses all attributes of movable property, being capable of abstraction, consumption, transmission, transfer, delivery, storage, and ownership, and attracting criminal liability under Section 39 of the Indian Electricity Act, 1910, for dishonest abstraction. The Court noted that electricity is specifically exempted from tax under the Schedules to the Acts, which implied legislative recognition that it was otherwise taxable as goods, reinforcing its inclusion. The Board's activity of generating, supplying, and distributing electricity was therefore a business, making the Board a dealer. On the second issue, the Court examined the arrangement for steam supply: water was provided by the mill free, the Board only charged the actual cost of conversion, and the mill indemnified for loss if it took less than full steam. The Court held that the dominant object was not the transfer of a chattel but the provision of work and labour, making it a works contract. Profit motive was not essential for a works contract. Consequently, the supply of steam was not a sale and not taxable. The Supreme Court allowed the Commissioner's appeals in part, reversing the High Court's decision on electricity and holding that the Electricity Board is a dealer in electric energy. It upheld the High Court's decision that steam supply was not a sale. The Electricity Board's appeals concerning coal-ash, tender forms, and purchase tax were dismissed.

Headnote

Issue of Consideration

Final Decision

Supreme Court allowed appeals of Commissioner in part, reversing High Court on electricity question and holding Electricity Board is a dealer in electricity; dismissed Electricity Board's appeals; supply of steam held not a sale but works contract.

Law Points