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1961 (7) TMI 45 - SC - VAT and Sales TaxWhether on the construction of the agreement dated the 4th June, 1942, between the assessee Messrs Rohtas Industries Ltd. Dalmia Nagar (along with 3 other manufacturing companies) and the Cement Marketing Company of India Ltd., the cement delivered, despatched or consigned by the assessee to the Cement Marketing Company of India Ltd., or to their order or in accordance with their directions are sales to the latter within the meaning of the Bihar Sales Tax Act (Bihar Act VI of 1944)? Held that - Appeal dismissed. As agreeing with the view of the High Court, that clause 24 does not qualify the legal effect of the other important clauses of the agreement, and that the cement delivered, despatched or consigned by the manufacturing companies to the Marketing Company or to its orders or in accordance with its directions was sold by the manufacturing companies to the Marketing Company and the sale was liable to be taxed under the Bihar Sales Tax Act, 1944.
Issues involved:
1. Liability to pay sales tax. 2. Construction of the agreement dated June 4, 1942. 3. Relationship between the manufacturing companies and the Marketing Company. 4. Interpretation of specific clauses of the agreement. 5. Taxability of transactions under the Bihar Sales Tax Act, 1944. Issue 1: Liability to Pay Sales Tax The primary issue in this case was whether Rohtas Industries Ltd. was liable to pay sales tax under the Bihar Sales Tax Act, 1944, for cement supplied, delivered, or consigned pursuant to orders issued by the Cement Marketing Company Ltd. The company denied its liability, arguing that there was no sale to the Marketing Company. However, the Sales Tax Officer, the Commissioner of Sales Tax, and the Board of Revenue, Bihar, all disallowed this plea. The High Court also answered against the company, leading to the present appeals. Issue 2: Construction of the Agreement Dated June 4, 1942 The crux of the matter was the true effect of the agreement dated June 4, 1942, between the manufacturing companies and the Cement Marketing Company. The agreement's construction was crucial to determine if the transactions constituted a sale. The Supreme Court examined various clauses of the agreement and concluded that the property in the cement passed to the Marketing Company in return for a price, indicating a sale. Issue 3: Relationship Between the Manufacturing Companies and the Marketing Company The court scrutinized the relationship between the manufacturing companies and the Marketing Company. The company argued that the Marketing Company was an agent, not a buyer. However, the court found no covenant in the agreement indicating an agency relationship. Instead, the agreement appointed the Marketing Company as the "sole and exclusive sales manager" without constituting it as an agent. Issue 4: Interpretation of Specific Clauses of the Agreement The court analyzed specific clauses of the agreement to determine the nature of the transactions: - Clause 2: Appointed the Marketing Company as the sole sales manager, not an agent. - Clause 3: Prohibited the manufacturing companies from selling cement directly, making the Marketing Company the sole purchaser. - Clause 5: Fixed the price at Rs. 24 per ton, indicating a sale. - Clause 6: Authorized the Marketing Company to sell cement at its discretion, further supporting the buyer-seller relationship. - Clause 7: Required the manufacturing companies to deliver cement as per the Marketing Company's instructions. - Clause 14: Allowed the Marketing Company to appoint agents and stockists. - Clause 24: Provided for profit-sharing but did not establish an agency relationship. Issue 5: Taxability of Transactions Under the Bihar Sales Tax Act, 1944 The court concluded that the transactions between the manufacturing companies and the Marketing Company were sales within the meaning of the Bihar Sales Tax Act, 1944. The manufacturing companies had no control over the terms of the sale, and the Marketing Company sold the cement on its own behalf. Therefore, the amounts received by the manufacturing companies were taxable under the Act. Conclusion The Supreme Court agreed with the High Court's view that the cement delivered, despatched, or consigned by the manufacturing companies to the Marketing Company was sold to the Marketing Company and was liable to be taxed under the Bihar Sales Tax Act, 1944. The appeals were dismissed with costs. Appeals dismissed.
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