Substance over form in agency purchases: reimbursed amounts through procuring agents formed part of taxable turnover.

Transactions structured through procuring agents under the Kerala General Sales Tax Act were treated according to their substance rather than their form. Although the agents bought coco beans in their own names and issued statutory declarations under the last-purchase scheme, the surrounding facts showed that they acted on their own funds, at their own risk, and delivered goods only after transport to the buyer's stockyard. Splitting the price into cost, freight, expenses and commission did not change the character of the dealings. The arrangement was therefore treated as a purchase by the buyer, and the reimbursed amounts were included in taxable purchase turnover.

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Issues: Whether the transactions between the petitioner and its procuring agents were genuine agency transactions or, in substance, outright purchases by the petitioner so as to include the reimbursed amounts in taxable purchase turnover under the Kerala General Sales Tax Act.

Analysis: The declaration in Form 25 under Rule 32(14) of the Kerala General Sales Tax Rules is intended for transactions between dealers in goods taxable at the point of last purchase. The agents were registered dealers who bought coco beans in their own names, issued Form 25 to their sellers, and then supplied the goods to the petitioner against Form 25 issued by the petitioner. The terms of the arrangement showed that the agents bought the goods with their own funds, at their own cost and risk, and delivered them only after transport to the petitioner's stockyard. The bifurcation of the price into purchase cost, expenses, freight and commission did not alter the substance of the transaction. The statutory explanation treating certain principal-agent dealings as sales was held not to be inconsistent with the law of agency, and the facts showed that the arrangement was used to split the price and reduce tax incidence on the real turnover.

Conclusion: The transactions were held to be purchases by the petitioner and the reimbursed amounts formed part of the taxable purchase turnover. The challenge to the assessment failed.

Ratio Decidendi: Where a buyer issues statutory declarations under the last-purchase scheme and the surrounding facts show that agents purchased goods in their own names and at their own risk before delivery to the buyer, the arrangement is treated according to its substance and the full purchase cost is taxable as turnover.

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