1976 (1) TMI 167 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Determination of the true nature of the transaction between the respondent and M.R. & Co.
2. Whether the transaction was a sale or an agency relationship.
3. The applicability of sales tax under the Bombay Sales Tax Act, 1959.

Issue-Wise Detailed Analysis:

1. Determination of the True Nature of the Transaction:
The primary issue was to ascertain the true nature of the transaction between the respondent (Metal Distributors Ltd.) and M.R. & Co. The court analyzed the contract documented in the letter dated 15th February 1963. The letter indicated that the respondent agreed to import electrolytic copper ingot bars against M.R. & Co.'s import license and on the strength of the letter of authority issued to the respondent. The price of the goods was consistent with the price charged by the foreign company to the respondent. The letter also stated that the respondent was acting as an indenting agent for M.R. & Co., importing the goods on their account and at their risk. The court concluded that the dominant intention of the parties was to establish an agency relationship, as indicated by the terms of the contract and the handling commission structure.

2. Whether the Transaction was a Sale or an Agency Relationship:
The court examined whether the transaction constituted a sale or an agency relationship. The Sales Tax Tribunal had previously ruled that the respondent acted as an indenting agent for M.R. & Co., and the transaction was not a sale. The court upheld this view, noting that the letter of authority from the Joint Chief Controller of Imports and Exports explicitly stated that the respondent would act purely as an agent and that the imported goods would remain the property of the license-holder (M.R. & Co.). The court referenced its earlier decisions, emphasizing that transactions involving import licenses and letters of authority typically indicate an agency relationship unless circumstances clearly show otherwise. The court also rejected the department's argument that the inclusion of a force majeure clause and the lack of a detailed commission breakdown indicated a sale, stating that these factors did not override the dominant intention of the parties.

3. The Applicability of Sales Tax under the Bombay Sales Tax Act, 1959:
The court considered whether the transaction attracted sales tax liability. The Deputy Commissioner of Sales Tax had initially ruled that the transaction was a sale, but this was overturned by the Sales Tax Tribunal. The court affirmed the Tribunal's decision, concluding that the transaction was an agency relationship and not a sale. Consequently, the transaction did not attract sales tax under the Bombay Sales Tax Act, 1959.

Conclusion:
The court answered the referred question in the affirmative, confirming that the Tribunal was justified in holding that the transaction was not a sale but an agency transaction not liable to tax under the Bombay Sales Tax Act, 1959. The applicant was ordered to pay the costs of the reference, fixed at Rs. 250.