1975 (2) TMI 105 - HC - VAT and Sales Tax

Issues Involved:
1. Nature of the relationship between the respondent and the distributors.
2. Taxability of transactions under the Bombay Sales Tax Act, 1959.
3. Interpretation of the agreement between the respondent and the distributors.
4. Applicability of the precedent set by the Supreme Court in Hafiz Din Mohammad Haji Abdulla v. State of Maharashtra.
5. Relevance of the decision in Daruvala Bros. (P.) Ltd. v. Commissioner of Income-tax, Bombay.
6. Analysis of the transactions with M/s. Sivaram & Swamy.

Detailed Analysis:

1. Nature of the Relationship between the Respondent and the Distributors:
The primary issue was whether the relationship between the respondent and the distributors was that of principal and agent or vendor and vendee. The Tribunal concluded that the distributors were agents of the respondent, and the property in the goods did not pass to the distributors. This conclusion was based on the terms of the agreement, which indicated that the transactions were agency transactions and not sales.

2. Taxability of Transactions under the Bombay Sales Tax Act, 1959:
The Sales Tax Officer included the amounts representing transactions between the respondent and the distributors in the taxable turnover of the respondent, treating them as sales. However, the Tribunal held that these transactions were not sales and thus not liable to tax under the said Act. The High Court upheld this view, stating that the despatch of goods to the distributors did not constitute a sale.

3. Interpretation of the Agreement between the Respondent and the Distributors:
The agreement specified that prices would be maintained in parity with allied manufacturers, and the respondent would allow a commission of five per cent to the distributors. The agreement also provided for price fluctuations to be accounted for by issuing debit or credit notes. The High Court found that these terms indicated an agency relationship rather than a vendor-vendee relationship.

4. Applicability of the Precedent Set by the Supreme Court in Hafiz Din Mohammad Haji Abdulla v. State of Maharashtra:
The High Court referred to the Supreme Court's decision in Hafiz Din Mohammad Haji Abdulla v. State of Maharashtra, which held that a sale is a transfer of property for a price. The Supreme Court had concluded that the relationship in that case was of principal and agent. The High Court found significant similarities between the agreement in question and the one in the Supreme Court case, leading to the conclusion that the transactions were not sales.

5. Relevance of the Decision in Daruvala Bros. (P.) Ltd. v. Commissioner of Income-tax, Bombay:
The High Court distinguished the present case from the decision in Daruvala Bros. (P.) Ltd. v. Commissioner of Income-tax, Bombay, where the agreement was construed as a sale. The High Court noted that the terms of the agreement in Daruvala Bros. were different, particularly the clause preventing the assessee from making contracts in the name of the importers. Such clauses were absent in the present case, reinforcing the agency nature of the relationship.

6. Analysis of the Transactions with M/s. Sivaram & Swamy:
The Tribunal treated the agreement with M/s. Sivaram & Swamy as materially similar to the one with Herbertsons Private Limited. Letters from Sivaram & Swamy confirmed their role as agents, further supporting the Tribunal's conclusion that these transactions were not sales. The High Court agreed with this assessment, stating that the despatch of goods to Sivaram & Swamy did not amount to sales.

Conclusion:
The High Court concluded that the relationship between the respondent and the distributors was that of principal and agent, and the transactions were not sales liable to tax under the Bombay Sales Tax Act, 1959. The question referred to the High Court was answered in the affirmative, and the applicant was ordered to pay the costs of the reference.

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