Principal-agent distribution arrangement excluded sales tax where goods never passed as vendor-to-vendee transfers.

The arrangement between the respondent and the distributors was held to be principal-and-agent, not vendor-and-vendee, because the agreement fixed resale prices, reserved price control to the respondent, allowed only commission to the distributors, and provided for debit or credit adjustments on price fluctuations. Monthly statements of sales and stock, together with the surrounding correspondence, showed that the distributors held and dealt with the goods as agents. On that construction, property in the goods did not pass on despatch or receipt, so the despatches were not sales liable to tax under the Bombay Sales Tax Act, 1959.

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Issues: Whether the relationship between the respondent and the distributors was that of principal and agent, and not of vendor and vendee, so that the despatch of goods to the distributors did not amount to sales liable to tax under the Bombay Sales Tax Act, 1959.

Analysis: The agreement fixed the resale price, reserved to the respondent the right to regulate prices, provided only a commission to the distributors, and contemplated debit or credit adjustments on price fluctuations. The distributors were required to render monthly statements of sales and stock, and the correspondence and surrounding terms showed that the goods were held and dealt with by them as distributing agents rather than as buyers. On a true construction of the arrangement, the property in the goods did not pass to the distributors on despatch or receipt, and the transaction was not a sale. The Court found the agreement materially similar to the agency arrangement considered by the Supreme Court in the cited bidi case, and the South India distributors were also treated on the same footing on the material on record.

Conclusion: The relation was one of principal and agent, not vendor and vendee, and the transactions were not sales exigible to tax.

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