1956 (4) TMI 34 - HC - VAT and Sales Tax

Issues Involved:
1. Whether the supply of goods by the appellants to the company constituted sales under the Bombay Sales Tax Act, 1953.
2. The nature of the relationship between the appellants and the company-whether it was that of principal and agent or vendor and purchaser.
3. The application of previous legal precedents to the current case.
4. The interpretation of the consignment method of trading and its implications on tax liability.

Issue-wise Detailed Analysis:

1. Whether the supply of goods by the appellants to the company constituted sales under the Bombay Sales Tax Act, 1953:

The appellants contended that they had appointed the company as their selling agents, and there was no sale of goods from them to the company. They argued that the goods remained their property until sold by the company to customers. The Collector of Sales Tax, however, determined that the supply constituted sales under the Act. The Collector's decision was based on the authority of the company to sell in its own name, issue invoices, and sue or be sued by customers, implying a transfer of title at the point of sale to the customer.

2. The nature of the relationship between the appellants and the company-whether it was that of principal and agent or vendor and purchaser:

The appellants relied on several circumstances to support their contention that the company was merely a selling agent:
1) The appellants had the right to recall the goods before sale, indicating that the property remained with them.
2) The company insured the goods on receipt, but the insurance premiums were debited to the appellants.
3) The company received its commission and credited the appellants with the price of the goods sold as soon as the sale took place, even if the price had not been realized.

The Collector, however, cited the authority of the company to sell in its own name and the lack of privity of contract between the appellants and the customers as evidence that the title in the goods passed to the company at the time of sale to the customer.

3. The application of previous legal precedents to the current case:

The Collector referenced the cases of Kalyanji v. Tikaram and Kandula Radhakrishna Rao v. The Province of Madras to support his decision. In Kalyanji v. Tikaram, the court held that commission agents, who had the authority to sell in their own name, acted as principals vis-`a-vis purchasers, and the property in the goods was transferred to them prior to the sale to customers. Kandula Radhakrishna Rao followed a similar reasoning, emphasizing the transfer of property and title in goods by commission agents.

However, the court distinguished the present case from these precedents by highlighting the appellants' unique power to recall the goods, which indicated that the property remained with the appellants until the actual sale took place.

4. The interpretation of the consignment method of trading and its implications on tax liability:

The court examined the consignment method of trading used by the appellants and the company. It noted that the appellants preferred this method for internal convenience and to avoid taking credit for sales in their accounts until the goods were actually sold. The court found that the consignment method did not imply a sale from the appellants to the company. The appellants' right to recall the goods at any time before sale and the company's obligation to account for the purchase price received supported the view that the company was acting as an agent, not a purchaser.

The court also discussed the concept of a del credere agent, who guarantees the performance of contracts made on behalf of the principal. The company's bearing of bad debts and the remittances sent to the appellants were seen as fulfilling the agent's obligations, not as remittances of sale proceeds.

Conclusion:

The court concluded that the supplies in question did not constitute sales by the appellants to the company under the Bombay Sales Tax Act. The appeal was allowed, and the decision of the Collector was set aside.

Appeal allowed.

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