1991 (3) TMI 366 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the assessee was acting only as an agent in the transactions.
2. Interpretation of the agreement dated March 23, 1970, and the jural relationship between Indian Rare Earths Ltd. and the assessee.

Issue-Wise Detailed Analysis:

1. Whether the assessee was acting only as an agent in the transactions:

The primary question was whether the assessee was acting as an agent of Indian Rare Earths Ltd. or if they were outright purchasers of goods supplied by the company. The distinction between a contract of sale and a contract of agency for sale was crucial. According to Pollock and Mulla, "A principal does not sell to his agent. The essence of sale is the transfer of title to the goods for a price paid or promised to be paid. The essence of agency to sell is the delivery of the goods to a person who is to sell them not as his own property but as that of the principal who remains the owner of the goods and the agent is therefore liable to account for the proceeds."

The Supreme Court in Gordon Woodroffe & Co. (Madras) Ltd. v. Shaik M.A. Majid and Co. AIR 1967 SC 181 observed, "The essence of sale is the transfer of the title to the goods for price paid or to be paid. The transferee in such case becomes liable to the transferor of the goods as a debtor for the price to be paid and not as agent for the proceeds of the sale."

The true legal relationship was to be ascertained from the nature of the contract and the terms and conditions contained in the agreement. The Supreme Court in Bhopal Sugar Industries Ltd. v. Sales Tax Officer [1977] 40 STC 42 emphasized that the court has to look to the substance rather than the form of the agreement.

2. Interpretation of the agreement dated March 23, 1970, and the jural relationship between Indian Rare Earths Ltd. and the assessee:

The agreement described the assessee as a distributor, not explicitly as an agent. The terms included:
- Clause 1: Appointment as sole distributor for trisodium phosphate.
- Clause 4: Full payment for the total quantity lifted by the distributor should be made at the end of the month.
- Clause 6: Monthly statements showing the total quantity of goods received, sales effected, and closing stock.
- Clause 7: Responsibility for the realization of sale proceeds and bad debts.
- Clause 8: Responsibility for the safe custody and condition of the material.

The court noted that the payment of the full value of goods by the end of the month and the stipulation to pay interest on the amount outstanding were indicative of an outright purchase. The distributor's responsibility for bad debts and the absence of a provision for the return of goods further supported this conclusion.

The Supreme Court in Alwaye Agencies v. Deputy Commissioner of Agricultural Income-tax and Sales Tax [1988] 70 STC 107 found significant similarities between the agreement in that case and the present agreement. The court held that the clauses in the agreement were consistent with the assessee being a seller of the goods supplied by Indian Rare Earths Ltd. and inconsistent with them being an agent.

Conclusion:

The court concluded that the Appellate Tribunal was wrong in holding that the assessee was only an agent. The tax revision cases were allowed, and the Appellate Tribunal was directed to amend the appellate orders accordingly. The petitions were allowed without costs.