1988 (5) TMI 329 - SC - VAT and Sales Tax

Court rules firm as purchaser, not agent, in distributor agreement, deeming turnover taxable

The High Court determined that the assessee-firm was a purchaser, not an agent, of goods based on the distributor agreement's terms. The transactions were ... Agency versus sale - transfer of property as determinative of sale - intention of parties ascertained from the contract and surrounding circumstances - endorsement and delivery of documents of title as vesting property - rebate versus commission as indicia of relationship - deemed sales between principal and selling agent - inclusion in taxable turnoverAgency versus sale - transfer of property as determinative of sale - endorsement and delivery of documents of title as vesting property - intention of parties ascertained from the contract and surrounding circumstances - rebate versus commission as indicia of relationship - inclusion in taxable turnover - Whether the transactions between 1st September, 1967 and 20th December, 1968 were sales by the company to the distributor or were transactions in which the distributor acted merely as the company's agent, and consequently whether those transactions were liable to be included in the distributor's taxable turnover. - HELD THAT: - The Court examined the written distributorship agreement and the surrounding commercial arrangements and concluded that the substance, not form, governs. Although price was fixed by the manufacturer and goods were sometimes despatched direct to consumers, clause 8 required the distributor to arrange payment either immediately or by bank instruments, to insure consignments during any time-lag at the distributor's cost, and to bear the resultant effects and risks of direct despatches. The allowance was described as a 'rebate' rather than a 'commission', and documents of title (R/R or other despatch documents) were endorsed in favour of and handed over to the distributor on payment or sent through banks for collection. These features, taken together, indicated that property in the goods passed to the distributor upon endorsement/delivery of the documents of title and that the distributor was a purchaser who subsequently sold to customers rather than merely the company's agent. The Court applied the established principle that the terms and recitals of the contract, the intention of the parties as revealed thereby, and surrounding circumstances determine whether a contract is one of sale or agency, and found those factors pointed to sale. Having so held, it was not necessary to decide the alternative contention based on the statutory explanation treating transfers through a selling agent as deemed independent sales for the purposes of the Sales Tax Act.The transactions in the period specified were sales such that the distributor was a purchaser and the turnovers in question were properly includible in the distributor's taxable turnover.Final Conclusion: Appeal dismissed. The Court affirmed that on the facts and agreement the distributor was a purchaser (not merely an agent) for the transactions in issue and the taxable turnover of the distributor rightly included the said transactions. Issues Involved:1. Nature of the relationship between the assessee-firm and the company.2. Whether the transactions in question constituted sales by the said company to the assessee.3. Whether the transactions should be included in the taxable turnover of the assessee.Detailed Analysis:1. Nature of the relationship between the assessee-firm and the company:The primary issue was to determine whether the assessee-firm was acting as an agent of the company or as a purchaser of the goods. The agreement dated 11th February, 1967, appointed the assessee-firm as the exclusive distributor of sodium hydrosulphite in Kerala. The High Court emphasized that the test to determine whether there was a sale or not is to find out whether there is a transfer of property. The Court noted that the term 'distributor' and not 'agent' was used in the agreement, and the rebate given to the distributor was not termed as 'commission.' The Court concluded that the assessee-firm was not an agent but a purchaser of the goods.2. Whether the transactions in question constituted sales by the said company to the assessee:The Court examined the agreement's clauses, particularly clause 2(a), which allowed the company to make bulk supplies directly to consumers on the distributor's advice, provided the distributor arranged for payment and bore the risks. Clause 8 detailed the payment arrangements, indicating that the distributor had to ensure payment either in cash, by demand draft, or by irrevocable letter of credit. The Court found that these arrangements and the fact that the goods were insured at the distributor's cost indicated a transfer of property to the distributor. Thus, the transactions constituted sales by the company to the assessee.3. Whether the transactions should be included in the taxable turnover of the assessee:The Court noted that the invoices were prepared in the names of the consumers, and the goods were consigned through public carriers booked 'self,' with transport bills endorsed and handed over to the assessee. The High Court had previously held that the delivery to the distributor or his nominee (the consumer) indicated a transfer of property. The Court agreed with this view, stating that the property in the goods passed to the distributor upon endorsement and handing over of the bills. Consequently, the transactions were liable to be included in the taxable turnover of the assessee.In conclusion, the Court dismissed the appeal, affirming that the assessee-firm was a purchaser of the goods and not an agent, and the transactions were rightly included in the taxable turnover of the assessee. The appeal was dismissed with costs.