The State Of Rajasthan And Anr. vs Karamchand Thappar And Bros.

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 9 October, 1964

Coram: K. Subba Rao, J.C. Shah, S.M. Sikri

The case titled The State Of Rajasthan And Anr. versus Karamchand Thappar And Bros. was decided on 9 October 1964 by the Supreme Court of India. The judgment was authored by Justice S M Sikri, and the bench was composed of Justices K Subba Rao, J C Shah and S M Sikri. The matter before the Court was an appeal by special leave from a judgment of the Rajasthan High Court. The High Court had allowed a petition that had been filed by the respondent, Messrs Karam Chand Thapar and Bros. (Coal Sales) Ltd., Jaipur, which the Court referred to as the petitioner. The petition had been presented under Article 226 of the Constitution, seeking relief from the High Court’s order.

The factual background relevant to the issues before the Supreme Court was detailed at length. The petitioner was engaged in the business of supplying coal throughout India and operated a branch in Jaipur. That branch had been registered as a dealer with the Sales Tax Officer in Jaipur and conducted retail trade in the city while also supervising the direct supply of coal from collieries to consumers. On 2 September 1948 the petitioner obtained a monopoly for the sale of coal produced by collieries owned by the Equitable Coal Company in certain territories, including Rajputana. Subsequently, on 28 April 1955 the petitioner entered into a contract with the Government of Rajasthan for the supply of coal for a period of one month to the Jaipur Power House. After this initial arrangement, the parties executed several similar agreements for the regular supply of coal to the Jaipur Power House and to the Kotah Power House. The petitioner continued to supply coal under these agreements until May 1958. Because the effect of the agreement dated 28 April 1955 was heavily contested, the Court set out its terms. The agreement, dated the twenty‑eighth day of April, 1955, was executed between His Highness the Rajpramukh of the State of Rajasthan and Messrs Karamchand Thapar and Bros. (Coal Sales) Ltd., located at 5, Royal Exchange Place, Calcutta, the latter being referred to as the “contractor.” The contractor agreed to supply rubble coal, selected grade A, double‑screened, sized between three‑quarters of an inch and one‑and‑half inches, with a fusion point of ash at 1250 °F, sourced from Bejdih, Dhamomain and Jamuria West Collieries, and conforming to the coal analysis contained in letter No CS/4844 dated 11 February 1955. The contract required the contractor to deposit a security sum of Rs 10,000 (Rupees ten thousand only), which would be forfeited if the contractor failed to perform satisfactorily. The test report issued by the laboratory at Jaipur Power House was to be deemed final, and the decision of the Chief Engineer of the Electrical and Mechanical Department of the Government of Rajasthan was also declared final for all purposes. The coal was to be supplied free on board the collieries, subject to conditions that payment would be claimed only for supplies actually received and admitted at the Jaipur Power House in accordance with the specifications.

According to the agreement, the contractor was required to deliver coal that the Jaipur Power House actually received and admitted as complying with the prescribed specifications. The contractor also had the duty to organise all transportation and to ensure the safe delivery of the coal at the power house. The first consignment of coal had to arrive at the Jaipur Power House within ten days from the date the order was issued, and during the initial ten‑day period the contractor was obligated to supply no less than one hundred and fifty tons of coal each day. The contract further stipulated that the coal would be supplied at a controlled rate. The cost of railway freight was to be initially borne by the coal supplier, who could later claim reimbursement by presenting the appropriate vouchers together with the bill for the coal that had been admitted at the Jaipur Power House.

The Court observed that at the time the coal was supplied, the Colliery Control Order of 1945 governed all coal transactions from the collieries. Under that Order, Clause 4 authorised the Central Government to fix the price at which coal could be sold, and Clause 5 prohibited any colliery from selling coal at a price different from that fixed price. Clauses 6(1) and 6(2) provided further details. Clause 6(1) stated that when a colliery owner expressed in writing to the Deputy Coal Controller (Distribution) his willingness to sell directly to consumers and when the Deputy Coal Controller allotted coal to a consumer with the owner’s consent, the coal must be delivered at the price fixed under Clause 4 and no additional commission or charges could be levied, except that a broker could be paid a brokerage not exceeding six annas per ton. Clause 6(2) prescribed that a del credere agent could not charge the consumer a margin over the fixed price that exceeded one rupee per ton for coal, one rupee eight annas per ton for soft coke, or two rupees eight annas per ton for hard coke. The Court noted that Paragraph 1 of Clause 6 expressly permitted a colliery owner to give a broker a brokerage of up to six annas per ton, and the petitioner claimed that it received such brokerage from the Equitable Coal Company, whose coal was supplied to the Jaipur Power House. Clause 8 gave the Central Government the power to issue directions to a colliery regarding the disposal of its coal stock, including specifications of grade, size, quantity and the class or description of persons to whom the coal could or could not be disposed. When a direction was issued, Clause 9 required the colliery owner to comply with that direction. Finally, Clause 12‑E prohibited any person from acquiring, purchasing or agreeing to acquire coal from a colliery unless the colliery owner or his agent dispatched or agreed to dispatch the coal only under the authority and conditions contained in a general or special authority issued by the Central Government.

The Court observed that Clause 12‑E of the Colliery Control Order prohibited any colliery owner or his agent from dispatching or agreeing to dispatch or transport coal from the colliery unless the dispatch was carried out under a general or special authority issued by the Central Government and complied with the conditions contained in that authority. The petitioner explained the actual procedure that was followed for the supply of coal, a procedure that was not contested by the appellant before the High Court. According to the petitioner, the Chief Engineer of the Electrical and Mechanical Department of the Government of Rajasthan, located in Jaipur, notified the Deputy Coal Controller in Calcutta that a monthly ad‑hoc allotment of coal was required through the petitioner. A copy of this notice was also sent to the petitioner’s office in Jaipur. The petitioner, through its head office in Calcutta, then prepared a programme and submitted it to the Deputy Coal Commissioner (Distribution) in Calcutta, requesting the supply of coal from the collieries. The Deputy Coal Commissioner sanctioned the programme, and copies of the sanction were sent to the railway allotment authorities so that sufficient wagons could be allocated for the transport. Once the sanction was received, the collieries supplied the coal directly to the Executive Engineer of the concerned power house in Rajasthan. The railway receipt for the consignment was transmitted to the consignee through the petitioner, enabling the petitioner to take delivery of the coal from the railways. The sale bill for the coal supplied to the State of Rajasthan, together with copies of the railway receipts, were sent to the petitioner’s head office in Calcutta; these documents then reached the Jaipur office, where the sale price was collected from the State of Rajasthan for the coal supplied by the collieries.

The learned counsel for the appellants made a comment on the described procedure, noting that the State’s counter‑affidavit claimed that the documents submitted by the company were merely vouchers for its own bills and that the Government had no involvement with the Equitable Coal Company. The Court considered it necessary to refer to a letter dated 19 November 1956 from the Deputy Coal Commissioner, which contained a direction under Clause 8 of the Colliery Control Order. After prioritising the allocation of wagons and specifying the quantity and grade of coal to be supplied by certain collieries of the Equitable Coal Company, the Deputy Coal Commissioner directed that “the grade and size and quantity of coal to be supplied should strictly conform to the specification given above.” Copies of this letter were forwarded to the managing agents of the Equitable Coal Company and to the petitioner. The petitioner later filed its sales‑tax returns for the year 1955‑56, showing the supplies made to the power house under the heading “Turnover of goods without fee.” By order dated 12 February 1957, the Sales Tax Officer of Jaipur City included the sales to power houses, amounting to Rs 7,11,941‑13‑3, in the taxable turnover. The petitioner complained in its petition that the Sales Tax Officer had rejected its contention that the sales to the power houses could not be included in the taxable turnover.

The Sales Tax Officer failed to address the petitioner's argument that the supplies made to the power houses should not be counted as taxable turnover. The company chose not to file an appeal against the officer’s decision; instead, it sought relief by petitioning the Government and the Sales Tax Commissioner, but those attempts did not succeed. It later emerged that on December 30, 1957, the Council of Ministers adopted a resolution that would have exempted sales of coal to the Electric and Mechanical Department. However, the exemption could not be put into effect because the requisite documentation was not routed through the Finance Department. Although the formal paperwork was lacking, the decision was conveyed orally to the petitioner. While this matter was pending, the petitioner filed its tax returns for the assessment year 1956‑57, recording the coal supplied to the power houses under the heading “Turnover of goods exempt without fee on Form STV.” The company asserted that it had submitted the returns in that manner because it was apprehensive that the Sales Tax Officer might again tax that portion of the turnover as had been done previously.

The petitioner challenged the imposition of tax on the coal supplies to the power houses on three distinct grounds. First, it claimed that it acted solely as a broker and therefore did not qualify as a “dealer” as defined in the first paragraph of Section 2(f) of the Rajasthan Sales Tax Act, 1954, with respect to the transactions under dispute. Second, the petitioner argued that the sales were conducted in the course of inter‑state trade. Third, it maintained that the sales occurred outside the State of Rajasthan. Counsel for the petitioner, relying on the Supreme Court decision in M/s. New India Sugar Mills Ltd. v. Commissioner of Sales Tax, Bihar, introduced an additional argument that because the coal supplies were made pursuant to the Colliery Control Order, they should not be characterised as sales at all. The High Court accepted the petitioner’s first argument concerning broker status but did not address the second and third arguments. Counsel for the appellants contended that the High Court erred in finding the company to be a broker, asserting instead that the sales were made directly by the petitioner. In an alternative submission, counsel argued that the petitioner should be regarded as an agent within the meaning of the Explanation to Section 2(f) of the Rajasthan Sales Tax Act (Rajasthan Act XXIV of 1954). Section 2(f) defines a “dealer” as any person who carries on the business of buying, selling, or supplying goods in the State, whether on commission, for remuneration, or otherwise, and includes the Central Government, a State Government or any of their departments in respect of such business, a Hindu undivided family, and a society, club, or any other association which buys goods from or sells or supplies goods to its members. The Explanation adds that where a dealer residing outside the State conducts business of buying, selling, or supplying goods in the State through a manager or agent, that manager or agent shall be deemed, for the purposes of such business, to be a “dealer.”

In this case, the Court examined the definition of “dealer” set out in the first paragraph of Section 2(f) of the Rajasthan Sales Tax Act. The definition described a dealer as any person who carries on the business of buying, selling or supplying goods in the State, whether on commission, for remuneration or otherwise, and it also included the Central Government, a State Government, their departments, a Hindu undivided family and any society, club or other association that buys goods from or sells or supplies goods to its members. Counsel for the petitioner, Mr. Tewari, argued that there was no privity of contract between the Equitable Coal Company and the Government. He highlighted that under the agreement dated 28 April 1955, the petitioner was required to supply coal and that payment could be claimed only for supplies that the Jaipur Power House accepted as meeting the prescribed specifications. The petitioner was tasked with arranging transport, ensuring safe delivery of the coal and initially paying the railway freight. To secure performance of the contract, the petitioner deposited a security of ten thousand rupees. In response, counsel for the State, Mr. Sastri, contended that the agreement had to be interpreted in light of the Colliery Control Order, 1945, and that any inconsistency between the contract and that Order would be resolved in favour of the Order. He maintained that no title to the coal ever passed to, or could pass to, the petitioner and that the transaction amounted to a direct sale by the colliery to the State Government. He referred to Clause 6 and the direction issued by the Coal Controller under Clause 8 of the Colliery Control Order, which limited supply of coal to the State of Rajasthan. The Court observed that, under those directions, the Equitable Coal Company supplied the coal directly to the Rajasthan Government and that no property in the coal ever transferred to the petitioner.

The Court concluded that the petitioner did not fall within the definition of “dealer” in Section 2(f). The petitioner’s role was limited to procuring the supply of coal rather than selling or supplying the coal itself. Because the Colliery Control Order authorised only the Equitable Coal Company to deliver coal directly to the State, the petitioner could not acquire ownership of the coal. Consequently, even if the 28 April 1955 agreement contemplated a sale by the petitioner to the Rajasthan Government, the provisions of the Colliery Control Order rendered such a sale impossible, at least with respect to supplies from collieries that were bound to obey the directions of Clause 8. Therefore, the Court rejected Mr. Tewari’s contention that the petitioner qualified as a dealer under the first paragraph of Section 2(f). Mr. Tewari then raised an alternative argument, asserting that the High Court had failed to notice the explanation to Section 2(f). He claimed that the petitioner acted as an agent within that explanation because the Equitable Coal Company had sold or supplied goods to the Rajasthan Government through the petitioner under an earlier agreement dated 2 September 1948. Mr. Tewari maintained that the Colliery Control Order did not forbid collieries from obtaining orders through agents and that, under the 1948 agreement, the petitioner was required to arrange dispatches covering the monthly quantities of coal reserved on its account. Accordingly, he argued that the petitioner was fulfilling its obligations to the Equitable Coal Company when it entered into the 28 April 1955 agreement. The Court found considerable force in this contention, acknowledging the relevance of Clause 1 of the latter agreement, which identified the specific collieries belonging to the Equitable Coal Company from which coal was to be supplied.

The agreement identified the specific collieries that were to supply the coal, and those collieries were owned by the Equitable Coal Company. The petitioner did not receive any payment from the Rajasthan Government; instead, it was required to sell the coal at the rate fixed by the control order. Consequently, the only income the petitioner could obtain was the brokerage fee paid by the Equitable Coal Company. From these facts, it is reasonable to infer that the petitioner functioned as an agent of the Equitable Coal Company. The label “brokerage” attached to the remuneration does not, by itself, determine agency status. Whether a party is an agent depends on the particular facts of each case. Accordingly, it was unnecessary to consider the judgments cited by counsel for the petitioner, namely G. Gilda Textile Agency v. State of Andhra Pradesh and Firm Shivratan G. Mohatta v. Sales Tax Officer, Jodhpur. Counsel for the respondent also suggested that the petitioner acted as an agent of the Government, but that view was rejected. The petitioner received no payment from the Government, and the April 28, 1955 agreement, when read in its entirety, is clearly an arrangement between two principals. Accordingly, the petitioner is held to be an agent within the explanation to Section 2(f) and is therefore deemed a “dealer” for the purposes of the Act. It is also noted that counsel for the respondent did not argue that, assuming the coal supply constituted a sale, the Equitable Coal Company was not engaged in the business of selling or supplying goods within Rajasthan.

The next issue addressed concerns counsel for the petitioner’s contention that the High Court should not have granted relief under Article 226. While counsel for the petitioner acknowledges that the High Court possessed jurisdiction, he maintains that, given the facts, the High Court ought not to have intervened. That submission was rejected. The High Court provided sound reasons for its interference. It observed that the petitioner had challenged the State of Rajasthan’s authority to enact legislation imposing tax on the sale of goods outside Rajasthan, and that the petitioner claimed a fundamental right to free trade, alleging that the tax infringed that right. The High Court therefore declined to entertain the petition. Regarding the delay in approaching this Court, the High Court excused the petitioner’s lapse by noting that the petitioner had satisfactorily explained the reasons for the delay. The petitioner alleged, without being contradicted, that on December 30, 1957 the Secretary of the Government Public Works Department had submitted a proposal to the Council recommending exemption of the disputed transactions from sales tax, and that the Council adopted a resolution to that effect on January 10, 1958. Because the papers were not routed through the Finance Department, the Council’s decision could not be implemented. This decision was conveyed verbally to the petitioner, which accounted for the petitioner’s decision not to approach the Court earlier. In view of these undisputed facts, the petitioner was justified in not filing the petition sooner. Consequently, the appeal is allowed, but because the High Court did not consider the question of the situs of the sale or whether the sale occurred in the course of inter‑state trade, the matter is remitted to the High Court. Although counsel for the petitioner opposed raising the issue of whether the supply of coal amounted to a sale at this stage, the Court is inclined to permit that question to be raised, as it is a point of law that can be decided on the material submitted in the records, in accordance with the Court’s prior decision on that matter.

The Court noted that the Council had passed a resolution on 10 January 1958 directing that the disputed transactions be exempted from the levy of sales tax. However, because the supporting documents were not routed through the Finance Department, the resolution could not be put into effect. The Court observed that the Council’s decision was communicated to the petitioner only by verbal means. Consequently, the petitioner did not approach the Court at an earlier date. In the Court’s view, the facts regarding the verbal communication and the failure to submit the papers through the Finance Department were not contested. On the basis of these undisputed facts, the Court held that the petitioner was justified in refraining from filing a petition promptly and therefore was not at fault for the delay in seeking relief.

Having considered the above, the Court concluded that the appeal must be allowed, but it also observed that the High Court had not addressed two important legal questions: the situs of the sale and whether the sale was made in the course of inter‑state trade. Accordingly, the matter was to be sent back to the High Court for further determination of those issues. While counsel for the respondent opposed raising, at this stage, the question of whether the supply of coal amounted to a sale, the Court was prepared to permit that question to be considered because it is a pure question of law that can be decided on the basis of the material already placed on record. The Court further noted that a later decision of this Court, rendered after the High Court’s judgment in the present case, might be relevant, but expressly declined to give an opinion on whether that decision applies to the facts before it. The appeal was therefore affirmed and the case remitted to the High Court, with directions that the High Court dispose of the matter in accordance with the law. The Court also ordered that the costs incurred here shall be treated as costs in the proceedings.