TaxTMI 
TaxTMI 
1961 (7) TMI 45
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....y Ltd., hereinafter called the Marketing Company, in the following six quarters ending September 30, 1945, June 30, 1946, September 30, 1946, December 31, 1946, March 31, 1947, and June 30, 1947, on the plea that there was no sale by the appellant company to the Marketing Company. The plea of the company was disallowed by the Sales Tax Officer, also by the Commissioner, Sales Tax, Patna Division and by the Board of Revenue, Bihar. At the instance of the company, the following question was referred by the Board of Revenue to the High Court of Judicature at Patna for its opinion. "Whether on the construction of the agreement dated the 4th June, 1942, between the assessee Messrs Rohtas Industries Ltd. Dalmia Nagar (along with 3 other manufacturing companies) and the Cement Marketing Company of India Ltd., the cement delivered, despatched or consigned by the assessee to the Cement Marketing Company of India Ltd., or to their order or in accordance with their directions are sales to the latter within the meaning of the Bihar Sales Tax Act (Bihar Act VI of 1944)". The High Court answered the question "against the company". Section 4 of the Bihar Sales Tax Act imposes liabili....
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....concern with the manufacture of cement. It is common ground that there was for some time unhealthy competition between different companies manufacturing cement, and with a view to avoiding competition and securing adequate return on investments, the Marketing Company was floated as a distributing company engaged in the sale of cement. The question whether there was a sale attracting liability to pay sales tax depends upon a construction of the agreement between the Marketing Company and the manufacturing companies. If property in the cement passed to the Marketing Company in return for price and the Marketing Company sold the cement on its own, then sales tax must be paid by the manufacturing companies. An examination of the various clauses of the agreement discloses that such was in fact the case. The true nature of a transaction evidenced by a written agreement has indeed to be ascertained from the covenants and not merely from what the parties chose to call it. The words of an agreement must be carefully scrutinized in the light of the surrounding circumstances. The appointment of the Marketing Company under clause (2) of the agreement to be the sole and excl....
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.... pay to the manufacturing companies at the rate of Rs. 24 per ton supplied at works, and for special cements, such amounts above the basic rate of Rs. 24 per ton as the directors of the Marketing Company in their discretion, having regard to the difference between the selling prices of such cement and the ordinary cement, deemed proper. The rate fixed by clause 15 was again liable to be revised from time to time by the directors of the Marketing Company. By that clause, the Marketing Company reserved to itself the right to modify from time to time the terms by unilateral decisions of its directors, and the manufacturing companies agreed to accept such modifications. A covenant of this nature strongly indicates a relation of vendor and purchaser and the party authorised to modify unilaterally the agreement cannot be an agent. By clause 30, provision was made for payment of interest by the Dalmia Group if they desired immediate payment in cash for any supplies for which credit had been given by the Marketing Company. It is implicit in the terms clause 30 that the manufacturing companies had no control over the terms on which cement was to be sold or otherwise disposed of by the Ma....
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....e Marketing Company which had the right, under the terms of the agreement, to sell on such terms as it thought fit and that the manufacturing companies had the right to receive only the price fixed by the Marketing Company. The relationship in such cases can be regarded only as that of a seller and buyer and not of principal and agent. Mr. Viswanatha Sastri appearing on behalf of the company contended that the Marketing Company was expressly designated "agent" in the agreement. That however, is not strictly accurate. As has been already pointed out, by clause 2, the Marketing Company was constituted "the exclusive sales manager", and the preamble merely recited that the Marketing Company was authorised by its constitution to act as selling agents, but on the terms of the agreement, it was to sell "the production and regulate the sale of the manufacture" of the various companies. There is nothing in the preamble or clause 2 which even indirectly refers to the Marketing Company as an agent. Undoubtedly, the Marketing Company had no storage facilities; it merely transmitted the orders for sale of goods received from the purchasers. By clause 14, the Marketing Company was entitled t....