1958 (2) TMI 31 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the transactions between the assessee and the Cement Marketing Company of India Ltd. were sales within the meaning of the Bihar Sales Tax Act, 1944.
2. Whether the assessee is entitled to a deduction in computing its taxable turnover under section 5(2)(a)(v) of the Bihar Sales Tax Act, 1944.

Issue-wise Detailed Analysis:

1. Whether the transactions between the assessee and the Cement Marketing Company of India Ltd. were sales within the meaning of the Bihar Sales Tax Act, 1944:

The core issue was to determine the nature of the relationship between the assessee, Messrs Rohtas Industries Ltd., and the Cement Marketing Company of India Ltd. (Marketing Company) under the agreement dated 4th June, 1942. The court needed to ascertain if the transactions constituted sales or an agency relationship.

The agreement appointed the Marketing Company as the "sole and exclusive sales managers" for the Manufacturing Companies, including the assessee, prohibiting them from selling cement directly or indirectly to any customer except through the Marketing Company. The Marketing Company was given the discretion to fix selling prices and terms, and it was bound to pay the Manufacturing Companies a uniform basic payment of Rs. 24 per ton for ordinary cement, with additional payments for special types of cement or special packing.

The court emphasized that the essence of a contract of sale is the transfer of title of goods for a price paid or promised to be paid, while the essence of agency to sell is delivery of goods to a person who sells them as the property of the principal and is liable to account for the sale proceeds. The Marketing Company had the liberty to sell at any price and terms it deemed fit, and it was not required to account for the sale proceeds to the assessee, indicating that the Marketing Company was not acting in a fiduciary capacity.

The court concluded that the relationship between the assessee and the Marketing Company was one of seller and purchaser, not principal and agent. The Marketing Company was purchasing cement from the assessee and then reselling it, bearing the risks and benefits of the sale. Therefore, the transactions were deemed sales within the meaning of the Bihar Sales Tax Act, 1944.

2. Whether the assessee is entitled to a deduction in computing its taxable turnover under section 5(2)(a)(v) of the Bihar Sales Tax Act, 1944:

The assessee claimed deductions under section 5(2)(a)(v) of the Bihar Sales Tax Act, 1944, which were disallowed by the Commissioner of Sales Tax on the ground that the sales to third parties were not the sales of the assessee but of the Marketing Company. The Board of Revenue affirmed this view, holding that the assessee could not be regarded as the seller of cement to dealers and consumers but as the seller to the Marketing Company.

The court's analysis of the agreement and the relationship between the parties supported the conclusion that the Marketing Company was the purchaser of the cement from the assessee, and thus the sales were taxable under the Bihar Sales Tax Act. Consequently, the assessee was not entitled to the claimed deductions since the transactions were sales to the Marketing Company and not to third parties directly by the assessee.

Conclusion:

The court held that the transactions between the assessee and the Marketing Company were sales within the meaning of the Bihar Sales Tax Act, 1944, and the assessee was not entitled to the deductions claimed under section 5(2)(a)(v) of the Act. The question of law referred to the High Court by the Board of Revenue was answered against the assessee and in favor of the State of Bihar. The assessee was ordered to pay the costs of the reference.