1981 (7) TMI 228 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Nature of transactions between the assessee and Abdul Shukoor and Company.
2. Whether the transactions constituted sales in the course of export.
3. Taxability of the turnover in question.
4. Interpretation of agency relationship under the Indian Contract Act, 1872.
5. Applicability of statutory fictions under the Tamil Nadu General Sales Tax Act, 1959.

Issue-wise Detailed Analysis:

1. Nature of Transactions Between the Assessee and Abdul Shukoor and Company:
The primary issue was whether Abdul Shukoor and Company acted as agents for the assessee in the transactions or if they purchased the goods from the assessee and sold them to foreign buyers independently. The Tribunal found there was a standing agency contract between the assessee and Abdul Shukoor and Company, supported by agreements dated 3rd April 1965 and 11th April 1969. The Tribunal examined the accounts and found that Abdul Shukoor and Company had acted as agents, obtaining prior approval from the assessee for export sales and informing them of the terms of sales with foreign buyers. The Tribunal concluded that the transactions were agency transactions, not independent sales by Abdul Shukoor and Company.

2. Whether the Transactions Constituted Sales in the Course of Export:
The Tribunal held that the transactions in question were sales in the course of export. Despite the foreign buyers dealing directly with Abdul Shukoor and Company and being unaware of the agency relationship, the Tribunal found that the transactions were carried out on behalf of the assessee. The Tribunal referred to Sections 231 and 232 of the Indian Contract Act, 1872, concluding that the exports by Abdul Shukoor and Company were transactions effected by them as agents for an undisclosed principal (the assessee).

3. Taxability of the Turnover in Question:
The State Government argued that the transactions should be treated as sales to Abdul Shukoor and Company for resale, making the turnover taxable. However, the Tribunal's findings, supported by the evidence, indicated that the transactions were direct export sales by the assessee through their agent, Abdul Shukoor and Company. The Tribunal's decision was upheld, and the turnover was not liable for sales tax.

4. Interpretation of Agency Relationship Under the Indian Contract Act, 1872:
The Tribunal referred to Sections 231 and 232 of the Indian Contract Act, 1872, which deal with undisclosed principals and the rights and obligations arising from such relationships. The Tribunal observed that the non-disclosure of the principal (the assessee) to the foreign buyers did not alter the nature of the transactions as agency transactions. The Tribunal concluded that the transactions were carried out by Abdul Shukoor and Company as agents of the assessee, despite the foreign buyers being unaware of this relationship.

5. Applicability of Statutory Fictions Under the Tamil Nadu General Sales Tax Act, 1959:
The Tribunal rejected the State Government's argument that the transactions should be deemed as local sales by the assessee to Abdul Shukoor and Company. The Tribunal emphasized that sales tax attaches to actual sales, not fictitious ones. The Tribunal referred to Explanation (4) to Section 2(n) of the Tamil Nadu General Sales Tax Act, 1959, which provides for deemed sales under certain circumstances. However, the Tribunal found that the facts of the case did not support the application of this statutory fiction. The Tribunal's decision was based on the actual agency relationship and the evidence on record.

Conclusion:
The Tribunal's findings were upheld, and the turnover in question was not liable for sales tax as it represented direct export sales by the assessee through their agent, Abdul Shukoor and Company. The revision filed by the State Government was dismissed, and the assessee was entitled to costs.