1968 (3) TMI 97 - HC - VAT and Sales Tax

Issues Involved:
1. Entitlement to deduction from total turnover under section 2(s)(ii) of the Andhra Pradesh General Sales Tax Act and rule 6(1)(a) of the Andhra Pradesh General Sales Tax Rules.
2. Nature of payments made to the sole selling agent - whether they constitute a discount or commission.
3. Relationship between the petitioner and the sole selling agent - whether it is one of sale or agency.

Issue-wise Detailed Analysis:

1. Entitlement to Deduction from Total Turnover:
The primary question raised and argued in the cases was whether the petitioner is entitled to a deduction from his total turnover under section 2(s)(ii) of the Andhra Pradesh General Sales Tax Act and rule 6(1)(a) of the Andhra Pradesh General Sales Tax Rules. The petitioner, a manufacturer of chemical fertilizers, claimed that amounts paid to its sole selling agent, Alladin & Co., were in the nature of a discount and thus deductible from the total turnover. The assessing authority, first appellate authority, and the Sales Tax Appellate Tribunal unanimously rejected this claim, holding that the amounts were commissions, not discounts.

2. Nature of Payments - Discount or Commission:
To understand the petitioner's contention, it is necessary to examine section 2(s)(ii) and rule 6(1)(a). Section 2(s) defines "turnover" and includes the total amount set out in the bill of sale as consideration for the sale or purchase of goods. Explanation (ii) specifies that any cash or other discount on the price allowed in respect of any sale shall not be included in the turnover. Rule 6(1)(a) allows for the deduction of amounts allowed as discount, provided such discount is in accordance with the regular practice of the dealer or terms of a contract and that the accounts show the purchaser paid only the sum originally charged less the discount. The court noted that the word "discount" is not defined in the Act but generally means an abatement of price allowed in respect of any sale. Therefore, to claim a deduction, the dealer must show that the discount was allowed on a sale.

3. Relationship Between Petitioner and Sole Selling Agent - Sale or Agency:
The court examined the agreement between the petitioner and Alladin & Co. dated 15th October 1959, which referred to Alladin & Co. as the sole selling agent. The agreement granted Alladin & Co. the exclusive right to sell the petitioner's fertilizers, with the petitioner retaining the right to sell directly to certain entities without paying commission to the agent. The agreement termed the payments to Alladin & Co. as "commission" and detailed various terms consistent with an agency relationship, such as the agent's obligation to sell at prices fixed by the petitioner, the provision for commission on direct sales by the petitioner, and the requirement for the agent to maintain proper accounts and employ adequate staff.

The court concluded that the agreement envisaged a relationship of agency, not vendor and purchaser. The petitioner's counsel conceded that the agreement evidenced an agency relationship but argued that the parties had practically abandoned the agreement and adopted outright sale transactions. The court found no evidence to support this claim and noted that the terms of the agreement continued to be enforced during the relevant period.

The court also examined cash memos issued by the petitioner and Alladin & Co. and found that they did not indicate outright sales but rather sales to consumers through the agent. The court rejected the petitioner's argument that the essence of the transactions was the passing of property in the goods upon payment, citing the agreement and cash memos as evidence of an agency relationship.

Conclusion:
The court concluded that there were no sales effected by the petitioner to Alladin & Co., and the amounts paid to Alladin & Co. were not discounts within the meaning of section 2(s)(ii) and rule 6(1)(a). Therefore, the petitioner was not entitled to deductions of those amounts from its total turnovers for the relevant assessment years. The tax revision cases were dismissed with costs to the department, and the concurrent decisions of the lower authorities were upheld.

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