Agency versus sale: exclusive resale control and fixed price payment made the arrangement a taxable sale.

A distribution agreement was construed to determine whether cement supplied by the manufacturer to the Cement Marketing Company amounted to sales under the Bihar Sales Tax Act, 1944. The Court found that the Marketing Company had exclusive selling rights, fixed resale prices and terms on its own, paid the manufacturer a fixed basic price on delivery, and was not accountable for resale proceeds. These features showed a vendor-purchaser relationship, not a principal-agent arrangement, and clause 24 on surplus profits did not change that legal character. The cement delivered to the Marketing Company was therefore treated as sales to that company and subject to sales tax.

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Issues: Whether, on a true construction of the agreement dated 4 June 1942, the cement delivered, despatched or consigned by the assessee to the Cement Marketing Company, or to its order or directions, constituted sales to that company within the meaning of the Bihar Sales Tax Act, 1944.

Analysis: The agreement gave the Marketing Company the exclusive right to sell the cement, while the manufacturing companies, including the assessee, were prohibited from selling directly to third parties. The assessee was bound to deliver only to the Marketing Company or in accordance with its directions, and the Marketing Company was obliged to pay a fixed basic price per ton within a specified time, irrespective of the price at which it might resell. The Marketing Company could fix resale prices at its discretion, contract with customers on its own terms, and was not required to account to the assessee for the actual sale proceeds. These features showed that the Marketing Company was not acting in a fiduciary capacity as agent for the assessee. Clause 24, providing for division of surplus profits, did not alter the dominant legal effect of the transaction. The legal relationship was therefore one of vendor and purchaser, not principal and agent.

Conclusion: The cement supplied by the assessee to the Marketing Company was held to be sales to that company within the meaning of the Bihar Sales Tax Act, 1944, and the question was answered against the assessee.

Final Conclusion: The reference was answered in favour of the State, and the assessee was held liable to sales tax on the transactions in question.

Ratio Decidendi: Where a buyer is entitled to resell goods at prices and on terms of its own choosing, pays the supplier a fixed price on despatch, and is not accountable to the supplier for resale proceeds, the transaction is a sale and not an agency arrangement, notwithstanding labels such as 'sales manager' or 'selling agent'.

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