TMI Blog1974 (1) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... te. It is only the transactions subsequent to 1st September, 1967, that are disputed to be not sales. There is no dispute that the transactions up to that date are not taxable. According to the distributor, no purchase was made from the company of the goods covered by the agreement and supply was made by the company to the consumers direct, the distributor acting only as an agent. That plea did not succeed before the assessing authority or the Appellate Assistant Commissioner. The Sales Tax Appellate Tribunal by a majority, the departmental member dissenting, took the view that the transactions between the distributor and the company are only agency transactions and explanation (5) to section 2(xxi) of the Kerala General Sales Tax Act, 1963, would not apply to the case. The questions raised in this revision are: "A. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that regarding the transactions impugned, the assessee was acting only as an agent? B. Is the interpretation of the agreement dated 11th February, 1967, by the Appellate Tribunal correct? Is not the jural relationship between the assessee and T.C.C. Ltd., o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be extra. If any other duty or levy is imposed either by the State, Central or local authority the same also will be charged. These stipulations are found In clause 4(a) of the agreement. 8.. Clause 4(b) provides that the distributor "should sell the material to the clients or consumers at the above price plus the cost incurred by him for getting supplies to his area. This cost should be worked out and must be got approved by the company". 9.. The right to revise the price consequent upon the increase or decrease of price of raw materials, electricity charges, wages, etc., is reserved with the company and it is not to be questioned by the distributor. This is the provision in clause 5. 10.. Three per cent on the ex factory selling price is to be accounted to the distributor during the end of the month when a statement of accounts will be sent to the distributor and after confirmation from the distributor the settlement will be made. This is provided for in clause 6. 11.. The minimum off-take per mensem is guaranteed by the distributor and a security of Rs. 5,000 is offered in fulfilment of the guarantee [clause 7(a)]. 12. The company may permit the distributor to l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the agreement to determine the true nature of the relationship between the parties. The stipulations in this clause indicate without any possibility of doubt that, for the goods, payment is to be made by the distributor and that is his responsibility. The company looks up to him only for such payment. He should normally make such payment and take delivery of the goods, and, in cases where it is to be consigned, though the distributor pays only 10 percent, he undertakes to honour the documents of title when presented through the bank and for the period during which the goods remain without reaching the distributor any loss or risk will have to be covered by insurance, the cost of which will be debited to the distributor. 15.. Clause 9 relates to the right of the company to make available the goods to be supplied in smaller packings. 16.. The distributor has an obligation to send a copy of his invoices to the company duly signed by the client or consumer to whom the distributor makes the goods available and also report to the company the extent of future development of consumption within his area sufficiently in advance. The company can call for the original invoice book for in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ravened or altered. We are particularly referring to this aspect of the case because it is not as if the change effected in the mode of supply and invoicing under instructions from the distributor would necessitate overlooking of the terms of the agreement. 23.. Learned counsel for the revenue, Sri Paripoornan, challenges the Tribunal's order as being the result of an erroneous approach to the question of the nature of the dealings between the parties. The assessing authority has, according to counsel, indicated unequivocally that it is not by reason of the application of explanation (5) to section 2(xxi) of the Sales Tax Act, 1963, that the company is deemed to have sold the goods to the distributor. Explanation (5) reads: "Explanation (5).-Notwithstanding anything to the contrary contained in this Act or any other law for the time being in force, two independent sales or purchases shall, for the purposes of this Act, be deemed to have taken place- (a) when the goods are transferred from a principal to his selling agent and from the selling agent to the purchaser, or (b) when the goods are transferred from the seller to a buying agent and from the buying agent to his princ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of an agent to whom the goods are supplied by the principal is to account for the proceeds of the sale which he may effect. The property continues to be that of the principal till he sells the goods supplied to him. If there be a sale the seller has no interest in the goods sold once it is transferred to the purchaser who is free to deal with it as he likes. But in the Interests of business and for other reasons the seller may enter into stipulations with the purchaser in regard to the disposal by him of such goods. Such stipulations are quite common in ordinary commerce particularly in recent times. Merely because the freedom of the purchaser to deal with the goods as he pleases is restrained by stipulations, the transactions cannot be read as one of agency. Such stipulations are quite consistent with sales also. Fixing the maximum or sometimes the minimum price at which the goods are to be sold may be expedient. The maximum prices are quite often fixed. There may be such stipulations in transactions by the manufacturers with the distributors in goods such as drugs and pharmaceuticals. The minimum prices may be fixed by the manufacturer so as to maintain the prestigious position ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ip." The same learned Judge said thus in Gordon Woodroffe Co. v. Sk. M.A. Majid Co.A.I.R. 1967 S.C. 181., considering the same question, as follows: "The essence of sale is the transfer of the title to the goods for price paid or to be paid. The transferee in such a case becomes liable to the transferor of the goods as a debtor for the price to be paid and not as agent for the proceeds of the sale. On the other hand, the essence of agency to sell is the delivery of the goods to a person who is to sell them, not as his own property but as the property of the principal who continues to be the owner of the goods and who is therefore liable to account for the proceeds." 27.. In Bowstead on Agency, at page 5, the learned author has considered the distinction between an agent and a buyer: "A retailer is often described as being the agent for a manufacturer or manufacturers of goods which he sells. Though it may be that he is an agent in the legal sense, it is more likely that he is as regards the manufacturer a buyer, and as regards the consumer a seller. The question turns on whether he acts for himself for a profit, or accounts to the seller in return for commission or remunera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le between the appellants and the third parties. A delivery order is a document of title to goods [vide section 2(4) of the Sale of Goods Act], and the possessor of such a document has the right not only to receive the goods but also to transfer it to another by endorsement or delivery. At the moment of delivery by the mills to the third parties, there were, in effect, two deliveries, one by the mills to the appellants, represented, in so far as the mills were concerned, by the appellants' agents, the third parties, and the other, by the appellants to the third parties as buyers from the appellants. These two deliveries might synchronise in point of time, but were separate, in point of fact and in the eye of law. If a dispute arose as to the goods delivered under the kutcha delivery order to the third parties against the mills, action could lie at the instance of the appellants. The third parties could proceed on breach of contract only against the appellants and not against the mills. In our opinion, there being two separate transactions of sale, tax was payable at both the points, as has been correctly pointed out by the tax authorities and the High Court." 30.. Normally when s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re Is no use of the word 'commission' in the contracts and we see no reason to hold that 2 per cent should be taken as commission and not as a margin of profit. The important point is that if the contract was one of agency there was no need to mention the price at all as between the plaintiff and the defendants." 31.. Though the test to determine whether there is a sale or not is to find out whether there is transfer of property, that is only to state the same thing in another way. The question whether there has been transfer of property must necessarily depend upon an appreciation of the rights and obligations of the parties under the contract. If property is transferred, unless there is a specific stipulation to the contrary, any risk of loss or injury to the goods would, after the transfer, be not in the seller but in the buyer. That may not be so in the case of an agent unless it be there are special stipulations. We have pointed out that in the agreement between the company and the distributor in this case the company was looking up to the distributor to pay the price and take delivery. Such delivery may be either to the distributor himself or to his nominee, that being the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... third party and it is essential to an agency of this character that a third party should be in existence or contemplated. The essence of such an agent's position is that he shall be but a conduit pipe connecting two other parties." 33.. On a true construction of agreement in this case it is difficult to envisage any mutual obligations between the customers whose orders are booked by the distributor and the company who supplies the goods. It could easily be seen that particular care has been taken to express beyond doubt the intention that the company's obligations arise only by way of supply to the distributor and it is only with the distributor that the company deals. It is open to any buyer to stipulate that the seller should agree to consign the goods to the nominee of the buyer. In regard to certain types of sales, namely, sales effected in wagon-load or lorry-load lots, the company has, in the agreement, agreed to effect supplies direct to the consumer. What is stated as having been done in modification or in addition to the terms of the original agreement is that this arrangement was agreed to be extended to all consumers. But that does not in any way, according to us, affe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevance to the present case. But it is not necessary to go into it because, the decision, though not on the same point, was reversed by the Supreme Court in State of Kerala v. Goverdhan Hathibhai and Co.[1964] 15 S.T.C. 314 (S.C.)., in the appeal against the decision. The question of liability to tax was ultimately decided by the Supreme Court not on the basis of construction of the nature of the relationship between the parties but because it was found that even if there was agency, that would not, in the circumstances of the case, be material, as other conditions to justify exemption were not satisfied. It is more relevant to notice that this court disapproved the decision in Rohtas Industries Ltd. v. State of Biharsion of (1) [1981] 12 S.T.C. 464. (3) , where a different view had been taken by the High Court of Patna in its approach to a similar problem. This court differed from the view taken by the Patna High Court. But that decision went up in appeal to the Supreme Court and in Rohtas Industries Ltd. v. State of Bihar[1961] 12 S.T.C. 615 (S.C.)., the decision of the Patna High Court was affirmed by the Supreme Court. The transactions which were contended to be by way of agen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruction that the transactions are sales. We are afraid that this may not have any material relevancy to the case before us since the distributor In this case was not undertaking to guarantee any payment by the consumers but was directly taking up the responsibility for payment of the price Irrespective of any payment by the consumer. In fact no payment by the consumer to the company was ever contemplated under the terms of the contract here. 39.. We think, in the light of the discussion, we will be right in holding that there has been a transfer of property in the goods from the company to the distributor and the subsequent supply to the consumers was by way of sale by the distributor to such consumers. The Tribunal was, therefore, wrong in its approach to the question. The assessing authority has rightly dealt with the matter. We find that the Tribunal was not right in holding that the assessee was acting only as an agent and that In the transaction between the company and the distributor sales were not Involved. There was no justification to set aside, the assessment for any of the reasons stated in the order of the Tribunal. In the result, the revision by the revenue is allo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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