2009 (3) TMI 944 - HC - VAT and Sales Tax

Relationship between the petitioner and the procurement agency as principal and agent - whether the authorities have committed error in holding that the purchases of the commodities by the procurement agency was for and on behalf of the petitioner and that there was no instance of sale between the procurement agency and the petitioner? Held that - The perusal of the copies of the orders of the appellate authority and that of the Tribunal produced along with these petitions would clearly indicate that the assessing authority referring to various terms and conditions contained in the agreement entered into between the petitioner and the procurement agency and also having regard to the manner in which the scheme is operated has held that the relationship between the petitioner and the procurement agency is that of principal and agent and that the purchases made by the procurement agency was for and on behalf of the petitioner. The procurement agency only gets a fixed amount of commission. The goods stored in the godowns are treated as stocks of the petitioner and the petitioner pays charges payable to the warehousing corporations. The goods are insured at the cost of the petitioner. Therefore, when the commodities procured are transferred to the petitioner, it cannot be said that there was an instance of sale. It is only when the petitioner sells the procured commodity to different organisations, it attracts payment of sales tax. Under the circumstances we see no error of law or facts in the orders of the Tribunal and other authorities. If the petitioner has paid sales tax to the procurement agencies when the procured commodities were transferred, as held by the appellate authority, the petitioner is entitled for set-off of such amount. Therefore, no prejudice is caused to the petitioner and its apprehension that it is made liable to pay the tax twice has no substance. In view of the above discussion, we see no merits in these petitions and therefore there are no grounds to admit them.

Summary

Issues:
Interpretation of relationship between petitioner and procurement agency as principal and agent, applicability of sales tax on transactions, legality of orders passed by assessing authority, appellate authority, and Tribunal.

Analysis:
The petitions under section 23(1) of the Karnataka Sales Tax Act, 1957 challenged a common judgment by the Karnataka Appellate Tribunal regarding the liability of the petitioner, a Government undertaking, to pay sales tax on transactions involving agricultural commodities. The petitioner, acting as a central nodal agency nominated by the Government of India, appointed a procurement agency to purchase copra at minimum support prices. The assessing authority disallowed the petitioner's claim of exempted turnover on the grounds that the relationship between the petitioner and the procurement agency was that of principal and agent, not involving a sale. The appellate authority and the Tribunal upheld this decision, leading to the present petitions.

The learned counsel for the petitioner argued that the authorities misinterpreted the relationship between the petitioner and the procurement agency, leading to double taxation. However, the Court found no merit in these contentions. The agreements and the scheme's operation indicated that the procurement agency acted on behalf of the petitioner, with the goods stored in godowns considered as the petitioner's stock. The Court emphasized that the sales tax liability arises when the petitioner sells the procured commodities to consumers, not at the procurement stage. The Tribunal's decision was deemed legally sound, and the petitioner's apprehension of double taxation was unfounded.

In conclusion, the Court dismissed the petitions, stating that the relationship between the petitioner and the procurement agency was that of principal and agent, and no error of law or facts was found in the orders of the Tribunal and other authorities. The Court clarified that if the petitioner had paid sales tax to the procurement agencies upon transfer of commodities, it was entitled to a set-off. Therefore, the Court found no grounds to admit the petitions, ultimately upholding the decisions of the lower authorities.