Agency export sales retain their character where the intermediary acts for the principal, not as a buyer.

A genuine and continuing agency arrangement may preserve export sales character even where foreign buyers deal only with an intermediary in form. Written agreements, account books, statements of account and transaction records supported the conclusion that the intermediary acted for the assessee and not as buyer on its own account. Non-disclosure of the principal does not alter the real nature of the contract under the Indian Contract Act. A sales tax authority cannot treat such an agency export transaction as a local sale unless the deeming provision in the Tamil Nadu General Sales Tax Act applies on its terms. The turnover was therefore treated as export sales through an agent and not as taxable local sales.

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Issues: Whether the turnover represented export sales effected by the assessee through an agent so as to escape sales tax, or whether the transactions were to be treated as taxable local sales by the assessee to the intermediary.

Analysis: The arrangement between the assessee and the intermediary was found to be a genuine and continuing agency contract, supported by the written agreements, the account books, the statements of account, and the manner in which the transactions were recorded. The foreign buyers dealt only with the intermediary in form, but the intermediary acted on behalf of the assessee and not on its own account. Sections 231 and 232 of the Indian Contract Act, 1872 establish that non-disclosure of the principal to the other contracting party does not alter the real character of the contract where the intermediary is in fact acting as agent. The Court further held that a sales tax authority cannot create a fiction of its own and treat an agency export transaction as a local sale unless the statutory deeming provision in Explanation (4)(a) to Section 2(n) of the Tamil Nadu General Sales Tax Act, 1959 is attracted on its terms. On the findings recorded, there was no transfer of goods to the intermediary as buyer, but only agency handling of the assessee's export sales.

Conclusion: The turnover was rightly treated as export sales through an agent and was not liable to sales tax.

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