Principal-agent arrangement in bidis transactions did not amount to a sale and was not liable to sales tax.

The legal character of the despatch-and-sale arrangement had to be determined from the agreement and surrounding circumstances, not the labels chosen by the parties. Because the supplier fixed and could alter prices, the merchant earned only a fixed commission, remittances were made only after sales, and the supplier retained control over unsold stock and could cancel the agency, property in the goods did not pass on despatch. The arrangement therefore created a principal-agent relationship, not a vendor-purchaser relationship, and the transactions were not sales liable to sales tax.

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Issues: Whether the transactions under the agreement for despatch and sale of bidis created a relationship of principal and agent or of vendor and purchaser, and consequently whether the transactions amounted to sales liable to sales tax.

Analysis: The decisive question was the legal character of the arrangement, to be gathered from the terms of the agreement and the surrounding circumstances, and not from the labels used by the parties. The agreement showed that the goods were to be sold at prices fixed by the supplier, the supplier retained the power to alter those prices, the merchant was to receive only a fixed commission for his labour, remittances were to be made only after sales were effected, and the supplier retained control over unsold stock and the right to cancel the agency. These features indicated that property in the goods did not pass to the merchants on despatch and that the merchants acted only as agents.

Conclusion: The arrangement did not amount to a sale; it created a principal-agent relationship, and the transactions were not liable to sales tax as sales.

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