1962 (1) TMI 39 - SC - VAT and Sales Tax

Disputed transactions deemed principal-agent, not sales, for sales tax liability

The Court determined that the disputed transactions did not constitute sales but established a relationship of principals and agents based on the ... Whether the transactions in dispute amounted to sales in view of the agreements produced by the applicants? Held that:- Appeal allowed. The terms of clause (1) imposing an obligation upon the assessees to meet the demands of bidis of the merchants in the areas assigned to them further emphasizes that character of the relation between the parties. It is true that by clause (5), for damages or risk to the goods during transit or in the shop of the merchant, the latter is responsible, but that does not alter the true nature of the right in which he holds the goods. It is open to an agent to undertake a liability in respect of goods after they are delivered to him even though the property in goods does not pass to him. Clause (2) providing for giving delivery at the town where the merchant resides has no special significance. The diverse clauses of the agreement, in our judgment, create a relationship of principals and agent and not of vendors and purchaser between the assessees and the merchants to whom the bidis were despatched. Issues:Determining whether the transactions in dispute constituted sales based on the agreements produced by the applicants.Analysis:The case involved an appeal regarding the nature of the relationship between bidi merchants and the merchants to whom bidis were dispatched. The High Court had answered in the affirmative, considering an earlier judgment. The key question was whether the agreement created a relationship of principals and agents or vendors and purchasers. The Court emphasized that the true nature of the relationship had to be ascertained based on the terms of the agreement and the circumstances, rather than the labels used by the parties. The concept of 'sale' as a transfer of property for a price was crucial, as liability to pay sales tax depended on the existence of a taxable sale.The Court analyzed the clauses of the agreement to determine the nature of the relationship. Clauses indicated that bidis remained the property of the assessees even after being dispatched to the merchants. The merchants were bound by various conditions such as selling bidis at fixed rates, receiving a commission, and remitting money only after sales. The assessees retained the right to alter prices, cancel the agency, and arrange for the sale of bidis if needed. These provisions pointed towards a principal-agent relationship rather than a vendor-purchaser one.Specific clauses, such as the obligation to meet demands of bidis, highlighted the nature of the relationship as that of principals and agents. Even though merchants were responsible for damages or risks, it did not change the underlying ownership of the goods. The Court concluded that the diverse clauses in the agreement collectively established a relationship of principals and agents. As a result, the appeal was allowed, and the Sales Tax Tribunal's question was answered in the negative. The appellants were awarded costs for the appeal.In summary, the judgment focused on interpreting the agreement's clauses to determine the true nature of the relationship between the parties involved in the disputed transactions. The Court emphasized the concept of sale as a transfer of property for a price and analyzed the specific provisions of the agreement to establish that the relationship was one of principals and agents, leading to the allowance of the appeal.