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TMI Blog1977 (4) TMI 151X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant will be entitled to its costs throughout. - C.A. Nos. 1135, 1136, 1137, 1138 of 1972, - - - Dated:- 14-4-1977 - BHAGWATI P.N., UNTWALIA N.L. AND MURTAZA FAZAL ALI S. JJ. Ram Panjwani, Senior Advocate (H.S. Parihar, Advocate, for I.N. Shroff, Advocate, with him), for the respondent. S.T. Desai, Senior Advocate (Mrs. Anjali K. Varma and Srinerain, Advocates, with him), for the appellant. -------------------------------------------------- The judgment of the Court was delivered by FAZAL ALI, J.- These appeals by special leave are directed against the order of the Commissioner of Sales Tax dated May 5, 1970, rejecting the revision filed by the appellant before him against the order of the Appellate Assistant Commissioner, Sales Tax, imposing sales tax for the period April 1, 1958, to March 31, 1959, on consumption of motor spirit by the appellant for its own purposes which was treated by the sales tax authorities as a sale to the appellant and, therefore, falling squarely within the purview of section 2(1) of the Madhya Pradesh Sales of Motor Spirit and Lubricants Taxation Act, 1957, as it stood prior to May 31, 1961. It also appears that for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed by his order dated March 6, 1963, and the case was remanded to the Sales Tax Officer for fresh assessment after making necessary enquiries. Thereafter, the respondent-Sales Tax Officer assessed the appellant afresh by his order dated October 20, 1963, and made similar assessments for the other periods. Against this order the appellant moved this Court again, but ultimately withdrew the petition and filed a revision petition under section 28 of the Act to the Commissioner of Sales Tax, Madhya Pradesh. The Commissioner, after hearing the arguments of both the parties, invited further documents and after making further queries upheld the order of the Appellate Assistant Commissioner of Sales Tax holding that the appellant was liable to pay sales tax inasmuch as the contract which was entered into between the appellant and the Caltex (India) Ltd. was a pure and simple contract of agency and not a contract of sale. The Commissioner opined that as the contract was one of agency, the title to the property remained in the Caltex (India) Ltd. and if the appellant used the petrol for its own purposes as agent, then such a user would amount to a sale of the property of the company by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all its grammatical variations and cognate expressions means transfer of motor spirit for cash or deferred payment or for other valuable consideration and includes transfer of motor spirit by a society or club or any association to its members, but does not include a mortgage, hypothecation, charge or pledge; Explanation I. -Consumption of motor spirit by a dealer himself or on his behalf shall be deemed to be a 'sale'; Explanation II. -A sale of motor spirit deemed to be a sale inside the State within the meaning of sub-section (2) of section 4 of the Central Sales Tax Act, 1956 (74 of 1956), shall also be deemed to be sale inside the State for the purposes of this clause." Thus it would appear that in order to satisfy the conditions of "sale" under the definition of the Act, the following conditions must be satisfied: (i) that there should be a transfer of motor spirit from the seller to the buyer; (ii) that the transfer must be for valuable consideration which may be either cash or deferred payment; and (iii) that the transfer must not be in the nature of a mortgage, hypothecation, charge or pledge. Under explanation I, consumption of motor spirit by a deale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by it after delivery of the goods and the seller is not responsible for the same. Such a special arrangement between the parties is a factor which taken along with other circumstances points towards the agreement being one of sale. It is well-settled that while interpreting the terms of the agreement, the Court has to look to the substance rather than the form of it. The mere fact that the word "agent" or "agency" is used or the words "buyer" and "seller" are used to describe the status of the parties concerned is not sufficient to lead to the irresistible inference that the parties did in fact intend that the said status would be conferred. Thus the mere formal description of a person as an agent or a buyer is not conclusive, unless the context shows that the parties clearly intended to treat a buyer as a buyer and not as an agent. Learned counsel for the appellant relied on several circumstances to show that on a proper construction of the agreement it could not, but be, held to be a contract of sale. Learned counsel strongly relied on a decision of this Court in Sri Tirumala Venkateswara Timber and Bamboo Firm v. Commercial Tax Officer, Rajahmundry [1968] 21 S.T.C. 312 at 316 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very of the goods to a person who is to sell them, not as his own property but as the property of the principal who continues to be the owner of the goods and who is therefore liable to account for the proceeds." The Bombay High Court in Daruvala Bros. (P.) Ltd. v. Commissioner of Income-tax (Central), Bombay [1971] 80 I.T.R. 213., had, in almost similar facts, held that even though there were restrictions on the assessee, the agreement being one of distribution was to be treated as a contract of sale and not an agreement of agency. It would thus appear that even if a party is described as agent in the agreement he may not be an agent but a buyer though described as an agent. In fact we feel that there may be agreements which may contain some elements of agency but may be contracts of sale in other respects. Learned counsel for the respondent then relied on the decision in Foley v. Classique Coaches Ltd. [1934] 2 K.B. 1. This authority does not appear to be of any assistance to the respondent because in that case the court came to a finding of fact that there was no concluded contract at all and the agreement was merely an executory one and, therefore, the question of determini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iples enunciated by this Court in Sri Tirumala Venkateswara Timber and Bamboo Firm's case [1968] 21 S.T.C. 312 (S.C.)., and Gordon Woodroffe Company's case [1966] Supp. S.C.R. 1. Moreover, as pointed out by the Kerala High Court in that case, there were special terms and stipulations in the contract which persuaded the court to hold that it was a contract of agency. We would, therefore, like to confine the ratio of that case to the peculiar facts of that case. Further, it appears that while the Kerala High Court had expressly dissented from a decision of the Patna High Court in Rohtas Industries Ltd. v. State of Bihar [1958] 9 S.T.C. 248. and did not accept the propositions laid down by the said court, this Court had affirmed the aforesaid Patna High Court decision in Rohtas Industries Ltd. v. State of Bihar [1961] 12 S.T.C. 615 at 622, where it was observed thus: "We therefore agree 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 so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -- In full payment of the following bills Rs. nP. No. 19232 dt. 9-4-58 for 1,000 Gs. petrol Rs. 2,920.00 No. 19283 dt. 8-5-58 for 1,000 Gs. petrol Rs. 2,920.00 No. 19321 dt. 29-5-58 for 1,000 Gs. petrol Rs. 2,920.00 ------------ 8,760.00 No. 17586 dt. 1-5-58 for 1,000 Gs. Hispeedol Rs. 1,770.00 No. 17598 dt. 7-5-58 for 1,000 Gs. " Rs. 1,770.00 No. 17610 dt. 14-5-58 for 1,000 Gs. " Rs. 1,770.00 No. 17621 dt. 18-5-58 for 860 Gs. " Rs. 1,540.00 -------------------- 6,850.00 ------------ Rupees fifteen thousand six hundred ten only. 15,610.00 ------------------------------------------------------------------------------------------------------------------------ For the Bhopal Sugar Industries Ltd., Sd.- Illegible Manager." This chart also reveals a crucial fact, namely, that the supply of the products by the company was made to the appellant not on consignment basis but by way of outright sale. It appears from the documents produced by the appellant before the Commissioner that on inquiries made from the seller, namely, the Caltex Company, they confirmed the fact that the goods were sent to the buyer on the basis o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y one it liked at the prices fixed within the territory specified in the agreement. Thus the title to the property passed to the appellant the moment it took delivery of the same. It is, therefore, manifest that having taken delivery of the property if the appellant was using it for its own consumption it was using its own property in which the company had no title at all and such a user therefore could not, by any stretch of imagination, be treated as a sale. Another very important circumstance which clearly shows that the contract was one of sale and not of agency is the fact that after having taken delivery of the petrol and Hispeedol the appellant sold the same to its various customers, not even mentioning that the property belonged to the Caltex Company but issued cash memos in its own name, which clearly indicates that after taking delivery of the property the appellant became the absolute owner thereof and represented itself to be the owner of the property and sold it not as the property of the company but as its own property. This fact is clearly proved by the cash memos and credit vouchers produced by the appellant at pages 195-197 of the paper book. The cash memo desc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent." Under this clause the appellant was required to deliver reasonable quantities of products at the request of the company to consumers designated by the company at such points within the territory as may be specified. In consideration of complying with the request, the seller- company agreed to reimburse the appellant in full for the supplies and the appellant was also entitled to be paid transportation expenses and handling allowances as may have been incurred by it. This is another decisive factor which negatives the theory that the agreement could be one of agency. Indeed such a stipulation in the agreement is wholly inconsistent with the position of the appellant being an agent for in that case there was absolutely no scope for such a stipulation and the seller-company as a principal of the agent could have instructed it to supply the goods or petrol to designated customers and there was no question of the agent being reimbursed, because the property supplied belonged to the principal and was delivered to certain persons on the instructions of the principal. This clause, therefore, is yet another important factor which shows that the agreement was intended to be a contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any. The object of inserting this clause in the agreement appears to be that during the term of the agreement the appellant undertook to maintain proper sales, service and other record so that the company's reputation may not suffer and if any statement regarding the sales or other matter were required by the company, they were not required because the appellant was the agent of the company but it was because the company wanted to keep itself fully informed of the proper conduct of the business by the appellant in order to maintain its goodwill. It is manifest that if during the period of the agreement there were serious complaints against the appellant regarding the misuse of the privileges given to it under the agreement, the company could under the terms of the agreement terminate the agreement so as to save its reputation. Read as a whole, this stipulation does not amount to make the appellant liable to render regular accounts to the company inasmuch as the statements called for were required only for a very limited purpose, viz., to prevent the appellant from misusing his privileges and thereby jeopardising or harming the reputation of the company. In these circumstances, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration of the dealer undertaking faithfully, to carry out their part of the agreement as set forth above, the company undertakes to pay the dealer such commission and allowances as the company in its sole discretion shall think fit. The rate of commission and allowances that are current at the time are set forth in the schedule attached hereto, but the company reserve the right to alter such commission and allowances as and when they think fit without any previous notice to the dealer and without assigning any reason therefor." A perusal of this clause as a whole would show that the use of the words "commission and allowances" is not to indicate agency, but to indicate certain special benefits which the company wanted to confer on its distributors. Furthermore, the payment of commission by itself is not conclusive to show that the agreement was one of agency. In Balthezar and Son v. E.M. Abowath A.I.R. 1919 P.C. 166 at 167., Lord Dunedin observed as follows: "It comes to this that all the documents show on the face of them a contract between principals. The mere mention of commission in the contract as signed is not in any way, as pointed by the learned Judges of the Court ..... X X X X Extracts X X X X X X X X Extracts X X X X
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