1982 (9) TMI 226 - HC - VAT and Sales Tax

Summary

Issues Involved:

1. Determination of the nature of transactions involving the import and distribution of chemicals by the assessee.
2. Assessment of sales tax liability on the disputed turnover of Rs. 12,42,541.45.
3. Examination of the agency relationship between the assessee and the subsidiary concerns.

Issue-wise Detailed Analysis:

1. Determination of the nature of transactions involving the import and distribution of chemicals by the assessee:

The assessee, a private limited company, reported a total and taxable turnover for the year 1970-71. The Commercial Tax Officer initially determined higher turnovers and later rectified the purchase turnover of raw hides and skins. The dispute arose regarding the import of chemicals, which were distributed to subsidiary concerns. The assessee claimed these transactions were not sales but were conducted as an agent for the subsidiaries. The Appellate Assistant Commissioner accepted this, setting aside the assessment on the disputed turnover. However, the Board of Revenue, using suo motu revisional powers, disagreed, reinstating the original assessment. The court examined the agreements between the assessee and the subsidiaries, concluding that the assessee acted as an agent, not as an independent buyer and seller.

2. Assessment of sales tax liability on the disputed turnover of Rs. 12,42,541.45:

The assessing authority initially exempted the purchase value of chemicals imported by the assessee. Upon review, it assessed a turnover of Rs. 12,42,541.45 at 3%. The assessee contended that the chemicals were imported as an agent for the subsidiaries under the Export Promotion Scheme, and thus, the transactions were not taxable sales. The court found that the assessee had acted as an agent, distributing the chemicals to the subsidiaries without an element of sale. The agreements and the nature of transactions supported this agency relationship, ruling out the Board's assertion that the assessee imported the chemicals on its own account.

3. Examination of the agency relationship between the assessee and the subsidiary concerns:

The court scrutinized the agreements dating back to 1963, which were periodically renewed. The terms indicated that the assessee was appointed as an agent to promote exports and import chemicals on behalf of the subsidiaries. The agreements allowed the assessee to enter contracts in its name but on behalf of the principals, with the property in goods passing upon negotiation of shipping documents. The court found no evidence that the subsidiaries sold hides and skins to the assessee, who then sold them to foreign buyers. Instead, the assessee acted as an agent facilitating exports for the subsidiaries. The court distinguished between sales to an agent and sales through an agent, concluding that the transactions were conducted through the assessee as an agent, thus exempting them from sales tax.

Judicial Precedents and Principles:

The court referred to several cases, including Hajee Abdul Khalique Sahib & Co. v. State of Tamil Nadu, State of Tamil Nadu v. A. Shafeeq Ahmed & Co., Akhtar & Co. v. State of Tamil Nadu, and State of Tamil Nadu v. A. Rafeeq Ahmed & Co. These cases emphasized the distinction between sales to an agent and sales through an agent, the privity of contract between principals and foreign buyers, and the need for factual examination of agency relationships. The court found that the Board of Revenue erred in its conclusions, as the assessee's transactions were conducted as an agent, not as an independent seller.

Conclusion:

The appeal was allowed, and the order of the Board of Revenue was set aside, restoring the order of the Appellate Assistant Commissioner. The court held that the assessee acted as an agent for the subsidiary concerns, and the distribution of imported chemicals did not constitute taxable sales. There was no order as to costs.