2020 (3) TMI 143 - HC - VAT and Sales Tax

Failure to pay the disputed tax - TNGST Act, 1959 - CST Act, 1956 - respondent Commercial Tax Officer has held that the petitioner was acting as a Del credere agent for Tvl. Reliance Industries Ltd. and had failed to discharge the tax liability under the respective Acts - HELD THAT - A Del Credere Agent is someone who usually for extra remuneration undertakes the liability to guarantee the due performance of the contract by the buyer. A Del credere commission charged by him. He assumes responsibility for the solvency and performance of their contract by the vendees and thus indemnifies the Principal against any loss on account of possible default. He gives a security to the seller. The Del credere commission is the premium or price given by the principal to the Del credere agent for the guarantee given by the latter. A Del Credere agent is like any other agent bound to handover the money to the principal, as soon as he receives it or pays in advance and is distinguished from other agents. The fact that the petitioner acted as a Del Credere Agent stands established and therefore, the petitioner was a dealer within the meaning of the respective enactments - Whereas in Explanation (1-B) to Section 2(n) of TNGST Act, 1959, transfer of property involved in the purchase, sale, supply or distribution of goods through a factor, broker, commission agent or arhati, del credere agent or an auctioneer or any other mercantile agent, by whatever name called, whether for cash or for deferred payment or other valuable consideration, shall be deemed to be a purchase or sale, as the case may be, by such factor , broker, commission agent or arhati, del credere agent, auctioneer or any other mercantile agent, by whatever name called, for the purposes of this Act. From a cumulative reading of the definition of sale in Section 2(n) of the TNGST Act, 1959 only in the case of ascertained goods within the state of Tamil Nadu at the time of sale will be liable to tax in the hands of a Del credere agent. In this case, it is the contention of the petitioner that the goods were transferred by their principal namely Reliance Industries Ltd directly from the State of Gujarat. This would require verification on facts - The question of treating a transaction as sale by the petitioner would arise only if the goods were available in the State of Tamil Nadu when the petitioner placed purchase orders for and on behalf of the prospective buyers on the supplier in Tamil Nadu. This is a question of fact which would be required to be ascertained under only by the adjudicating authority. The cases are remitted back to the respondent for proper determination of taxability - petition allowed by way of remand.

Summary

Issues Involved:
1. Challenge to assessment orders under TNGST Act, 1959 and CST Act, 1956.
2. Legitimacy of tax demand on the petitioner as a Del Credere agent.
3. Applicability of Supreme Court precedents.
4. Definition and scope of "dealer" and "sale" under TNGST and CST Acts.
5. Determination of intra-state vs. inter-state sales.

Detailed Analysis:

1. Challenge to Assessment Orders:
The petitioner challenged the assessment orders passed by the Commercial Tax Officer, Trichy, for the assessment years 2002-2003 and 2003-2004 under the TNGST Act, 1959 and CST Act, 1956. The respondent demanded tax on the ground that the petitioner, being a dealer, failed to pay the disputed tax.

2. Legitimacy of Tax Demand:
The petitioner argued that the respondent had no authority to levy tax as the sales took place from the principal's location in Mumbai or its branch office, which had already paid CST/TNGST. The impugned orders held the petitioner liable as a Del Credere agent for Reliance Industries Ltd., asserting that the tax liability was on the principal, and the petitioner merely acted as an agent receiving commission.

3. Applicability of Supreme Court Precedents:
The petitioner relied on the Supreme Court decision in Peninsular Traders and Another Vs. Deputy Commissioner of Sales Tax (Law), Kerala, which identified the agreement as one of agency without transfer of property. The respondent countered that this decision was distinguishable and relied on other Supreme Court decisions like Alwaye Agencies Vs. Dy. Commissioner of Agricultural Income Tax and Sales Tax, and Bhopal Sugar Industries Ltd. Vs. Sales Tax Officer, Bhopal, emphasizing the distinction between agency and sale contracts.

4. Definition and Scope of "Dealer" and "Sale":
The court examined the definitions under the TNGST and CST Acts:
- Dealer: Includes any person who carries on the business of buying, selling, supplying, or distributing goods, including Del Credere agents.
- Sale: Defined as every transfer of property in goods for cash, deferred payment, or other valuable consideration, including transactions through Del Credere agents.

The court noted that the definitions in the respective enactments are inclusive and expansive, covering various forms of transactions.

5. Determination of Intra-State vs. Inter-State Sales:
The court emphasized that the determination of whether a sale was intra-state or inter-state is a mixed question of fact. It was noted that if the goods were transferred directly from the principal in Gujarat, the transaction would be an inter-state sale, taxable in Gujarat. However, if the goods were supplied from within Tamil Nadu, the petitioner would be liable for re-sale tax under the TNGST Act.

Conclusion:
The court quashed the impugned orders under the CST Act and set aside the orders under the TNGST Act, remitting the cases back to the respondent for proper determination of taxability. The respondent was directed to pass appropriate orders within three months, considering the observations made. The writ petitions were allowed or disposed of accordingly, with no costs and closure of connected miscellaneous petitions.

Orders:
1. W.P.Nos.37567 & 32110 of 2007 are allowed.
2. W.P.Nos.37568 & 32111 of 2007 are disposed.
3. No cost.
4. Consequently, connected Miscellaneous Petitions are closed.