1965 (12) TMI 130 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the transactions between the Government and the opposite party amounted to a sale within the meaning of the U.P. Sales Tax Act.
2. If the transactions are deemed sales, whether the sales of foodgrains by the opposite party will be treated as made on their own account as dealers.

Issue-wise Detailed Analysis:

Issue 1: Nature of Transactions - Sale or Not
The primary issue is whether the transactions between the Government and the opposite party amounted to a sale under the U.P. Sales Tax Act. The court noted that "sale" is defined in section 2(h) of the Act as "any transfer of property in goods for cash or deferred payment or other valuable consideration." The definition does not necessitate that the act of selling must be performed by the owner of the property. The court emphasized that the transfer of property in goods, regardless of ownership, constitutes a sale.

The court reframed the question to focus on whether the assessee is a dealer carrying on the business of buying or selling foodgrains. The court concluded that the assessees are indeed dealers because the transactions between them and the Government involved the transfer of property in the foodgrains, making the assessees the owners of the foodgrains. The court stated that the intention behind the agreements must be gathered from the entire scope and effect of the language used, not merely from the labels given to the parties.

Issue 2: Sales on Own Account or as Agents
The second issue is whether the sales of foodgrains by the opposite party should be treated as made on their own account as dealers. The court examined the terms of the agreements to determine the nature of the relationship between the Government and the assessees. Key clauses of the agreement included:
- Clause 2 required the assessees to establish retail shops and display notices of Government-controlled foodgrains.
- Clause 3 required them to sell the foodgrains at fixed prices.
- Clause 4 mandated the payment of the price at the time of obtaining foodgrains, suggesting a sale rather than an agency relationship.
- Clause 5 stated that the foodgrains were not returnable, indicating a transfer of property.
- Clause 12 imposed the liability for sales tax on the assessees, further indicating that they were acting as buyers and sellers.

The court concluded that these terms were more consistent with a buyer-seller relationship than with a principal-agent relationship. The court also referenced various legal precedents and American Jurisprudence to support its conclusion that the intention of the parties, as evidenced by the agreement, was to create a buyer-seller relationship.

The court held that the transactions by which the assessees transferred the foodgrains to their customers amounted to sales for the purposes of the Sales Tax Act. Therefore, the assessees were liable to pay sales tax on the turnover of these sales.

Conclusion:
The court answered both questions in the affirmative, holding that:
1. The transactions between the Government and the opposite party amounted to sales within the meaning of the U.P. Sales Tax Act.
2. The sales of foodgrains by the opposite party should be treated as made on their own account as dealers.

The court directed that copies of the judgment be sent to the Judge (Revisions), Sales Tax, U.P., and the Commissioner, Sales Tax, U.P., as required by section 11(6) of the U.P. Sales Tax Act. The Commissioner, Sales Tax, was entitled to his costs of the reference assessed at Rs. 50, with counsel's fee assessed at Rs. 200.