Hindustan Steel Ltd. v. State of Orissa

Read this judgement to find out how the Supreme Court interpreted various provisions of the Orissa Sales Tax Act in order to determine whether tax was payable by the plaintiff or not.
COURTSupreme Court of India
JUDGES/CORAMChief Justice J.C. Shah, Justice A.N. Grover and Justice V. Ramawami


There are three rules to the interpretation of any statute, which are applied by the courts and judges: the Literal rule, the Golden rule, and the Mischief Rule. Apart from these rules, various principles like ejusdem generis are also used by courts. In the present case, the Court interpreted the concerned legislation as per the plain and simple meanings of terms.


The facts of the case are as follows: M/s Hindustan Steel Ltd. was a Public Sector Undertaking and registered as a dealer under the Orissa Sales Tax Act, 1947 from the quarter ending March 1959. During the period of 1954-59, the company was erecting factory buildings, residential buildings and undertook ancillary works. These constructions were partially done by departments and partially by contractors. The Company supplied the contractors, for use in the construction, bricks, coal, cement, steel, etc. for consideration that was later adjusted in the value of goods supplied at specified rates in tender.

During tax assessment proceedings under the Orissa Sales Tax, the Sales Tax Officer held that the company was a dealer in building material and so, liable to pay tax under the Act as per the concerned provisions. The Sales Tax Officer directed the company to pay tax for 10 quarters along with penalty for failure to register itself as a dealer.

It was against this order that an appeal was made by M/s Hindustan Steel Ltd. before the Supreme Court. Learned three-judge bench of the Apex Court of the country held that the lower tribunal and court had erred in their judgement and ordered production of additional evidence.

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The main issues in the case are:

  1. Whether or not the Company sold building material to the contractors during the quarters in question.
  2. Whether or not the Company was a dealer in respect of building material within the meaning of the Orissa Sales Tax Act.
  3. Whether or not the imposition of penalties for failure to register as a dealer was justified.

Summary of court decision and judgment

The order of the Sales Tax Officer to pay tax as well as penalty was affirmed by the Appellate Assistant Commissioner. In second appeal before the Tribunal, the Tribunal upheld the orders of the tax authorities but reduced the penalty imposed. At the instance of the Company, the Tribunal referred the matter to the Orissa High Court. In its judgement, the High Court held that: M/s Hindustan Steel was a ‘dealer’ under the Act as he accrued profit, though without intention; sale of materials by the Company amounted to ‘sale’ under the Act; supplies of materials like bricks, etc. can be treated as ‘sale price’ under the Act; and, Tribunal was right in imposing the liability.

Appeals were filed by M/s Hindustan Steel by special leave before the Supreme Court whereby the Court ordered production of additional evidence regarding an important point in tender before giving the final verdict.


Section 2(g) of the Orissa Sales Tax Act describes “sale” as follows: ‘Sale’ means, with all its grammatical variations and cognate expressions, any transfer of property in goods for cash or deferred payment or other valuable consideration, including a transfer of property in goods involved in the execution of contract, but does not include a mortgage hypothecation charge or pledge.

Thus the four ingredients of ‘sale’ of (1) parties competent to contract; (2) mutual agreement; (3) absolute property in building materials was agreed to be transferred to contractors; and (4) supply was to be at agreed price, were satisfied in the present case. Hence, the supply of building material did constitute a sale.

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With regards to the second issue, the Act imposes penalty to register as a dealer under Sections 9 and 25. “Dealer” in the act is defined as “any person who executes any contract or carries on the business of selling or supplying goods in Orissa whether for commission, remuneration or otherwise and includes any firm or Hindu Joint family, and any society, club or association which sells or supplies goods to its members”. Furthermore, to be a dealer under the Act, the business of selling or supplying good must take place in Orissa. M/s Hindustan Steel, in the present case was supplying bricks, steel, cement and other materials at a premium to the contractors, and hence were ‘dealers’ under the Act.

But this liability does not arise merely upon proof of default in registering as a dealer. In the present case, the management of company proved that they genuinely and honestly did not believe that the Company was a dealer and hence did not register. Thus, no case for penalty was made out.

A major change in findings happened when terms of tender were examined: it was clear from the terms and schedules of the tender that the Company was to change certain fixed rates for cement and steel to be supplied by it. If the Company was charging a fixed percentage on the price paid by it for procuring such goods for storage and other incidental charges, it would be difficult to resist the conclusion that the Company was not carrying on the business of selling cement and structural steel. Neither the Tribunal, nor the High Court examined this point.

Thus, the Supreme Court correctly held that: M/s Hindustan Steel Co. sold building material; was a ‘dealer’; was not liable to pay penalty; and, the Tribunal and Court had erred in their findings. Furthermore, the Court called upon the Tribunal to submit a supplementary statement of the case on the following questions:

  1. whether the Company charged any profit apart from the storage charges for supplying cement and structural steel
  2. whether the difference between the price charged to the contractors and the price paid by the Company to its suppliers for bricks was not in respect of storage and other incidental charges.
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Thus, the Supreme Court gave a logical and reasoned judgment on the issues at hand and took into consideration a very important point, which was earlier missed. Definitions under the Act were important to be taken into consideration to exactly determine if M/s Hindustan Steel was a ‘dealer’ and accordingly whether it was liable to pay taxes or not.