Bhopal Sugar Industries Ltd. Vs. Sales
Tax Officer, Bhopal  INSC 118 (14 April 1977)
FAZALALI, SYED MURTAZA FAZALALI, SYED MURTAZA
CITATION: 1977 AIR 1275 1977 SCR (3) 578 1977
SCC (3) 147
CITATOR INFO :
F 1988 SC1250 (7)
Sales Tax--Dealer consuming goods for his own
purposes--If a sale exigible to tax.
The appellant was a manufacturer of sugar. It
also ran in the mill premises a petrol pump selling high speed diesel oil,
petrol and other lubricant oils of Caltex. A part of these oils was consumed by
the appellant for its own trucks and other vehicles. The Sales tax authorities
assessed to tax the petrol consumed by the appellant for its own use as well.
On appeal the Commissioner of Sales Tax held that since the appellant was an
agent of Caltex, title to the property in the goods sold by it remained with
the principal and as such that part of the petrol and other oils consumed by it
was also a sale exigible to tax.
Allowing the appellant's appeal
HELD: The petrol consumed by the appellant
for its own purposes was not a sale exigible to tax. A conspectus of the terms
of the agreement showed that after taking delivery, the appellant became the
owner of the goods and if it consumed the same for its own purposes, it was
doing so not as an agent but as owner. [592 E] 1(a) In a contract of sale title
to property in the goods passes on to the buyer on delivery of the goods for a
price paid or promised. Once this happens the buyer becomes owner of the property
and the seller has no vestige of title left in the property. Having regard to
the complexities of modern times the concept of sale has undergone a change and
made a departure from the old doctrine of laissez faire.
Even if the seller, by an agreement, imposed
a number of restrictions on the buyer, such for example as, fixing of price,
submission of statement of accounts, area of sale and so 6n these restrictions
would not per se convert a contract of sale into one of agency. [581 H] (b) A
contract of agency differs from a contract of sale inasmuch as an agent, after
taking delivery of the property, does not sell it as his own but sells it as
the property of the principal under his instructions and directions. [582 B]
(c) While interpreting the terms of an agreement, the Court has to look to the
substance rather than the form of the agreement. Use of words like
"agent" or "agency", "buyer" and
"seller" is not sufficient to lead to the inference that the parties
did in fact intend that the said status would be conferred. In certain trades,
the word "agent" is often used without any reference to the law of
principal and agent. [582 F-G] Sri Tirunala Venkateswara Timber and Bamboo Firm
v. Commercial Tax Officer, Rajahmundry.
21 STC 313, 316 followed.
W. T. Lam and Sons v. Goring Brick Company
Ltd. LR.  l KBD 710, 717, Gordon Woodroffe & Co. v. Sheikh M. ,4.
Majid & Co.
 Supp. SCR 1, 3-4 and Daruvala Bros.
(P) Ltd. v. Commissioner of Income-tax (Central) Bombay, 80 ITR 213 referred
Foley v. Classigate Coaches Ltd.  2 K B
D I, Michelin Tyre Company Ltd. v. Macfarlane (Glosgow) Ltd. (in Liquidation),
 2 Scots. L.T. 205, Financings Ltd. v Stimson.
 2 All. F.R. 386, 579 Willcox &
Gibbs Sewing Machine Company v. Daniel S. Ewing, 35 U.S. Law. Ed. 882, 884 held
In the instant case, the evidence furnished
by the agreement was sufficient to conclude (a) that the goods were supplied
not on consignment basis but by way of outright sale; (b) that the agreement
was to sell petrol and other oils, after the dealer had bought the property
from Caltex, at prices fixed by that company; (c) that stipulation of sale
price was to protect the company's goodwill and to ensure quality of goods to
be distributed-in fact stipulation of price which is generally a common term in
all agreements between monopolistic companies and their distributors did not
detract from the freedom of contract of sale; (d) sale by the appellant to
other customers did not disclose that the property belonged to Caltex; (e) it
was the appellant that bore losses due to leakage, driage and evaporation in
storage and (f) reimbursement by the company of transport charges and handling
expenses and also reimbursement of supplies made by the appellant to certain
designated customers showed that the agreement was a contract of sale and not
Further, the term requiring the dealer to
furnish statements of sales and other matters showed that the company wanted to
keep itself fully informed of the proper conduct of the business in order to
maintain its goodwill and to terminate the agreement in case it found that the
appellant was misusing the privilege given to it. The term "commission and
allowances" indicated that certain special benefits were conferred by the
company on its distributors. It did not show that it was an agency. Nor was the
term requiring the appellant to furnish security for the due observance and
performance of the stipulations an indication that the agreement was an agency.
Belthezar and Son v.E.M. Abowath, AIR 1919
P.C. 166, 167 referred to.
Ganesh Export and Import Company v. Mahadeolal
Mathmal, AIR 1956 Cal. 188 approved.
CIVIL APPELLATE JURISDICTlON: Civil Appeals
Nos. 11351138 of 1972.
Appeals by Special Leave from the Judgment
and Order dated the 5th May, 1970 of the Commissioner of Sales Tax, Madhya
Pradesh in Revision Case Nos. 2-5/RMS of 1968-1969 respectively.
S.T. Desai, (Mrs.) Anjali K. Varma and Sri
Narain for the Appellant.
Ram Panjwani, H.S. Parihar and 1. N. Shroff
The Judgment of the Court was delivered by
FAZAL ALl, J.--These appeals by special leave are directed against the order of
the Commissioner of Sales Tax dated May 5, 1970 rejecting the revision filed by
the appellant before him against the order or' the Appellate Assistant
Commissioner, Sales Tax, imposing sales tax.
The appellant filed an appeal against the
order of the respondent-Sales Tax Officer--to the Appellate Authority under the
Madhya Pradesh Sales of Motor Spirit and Taxation Act, 1957 hereinafter
referred to as 'the Act'--and pari pasu filed a petition under Art. 226 of the
Constitution in the High Court of Madhya Pradesh challenging the constitutionality
of the Act and the assessments made in pursuance thereof. The High Court, by
its judgment dated January 25, 1961, dismissed the petition of the'
appellant". The appellant. then approached this Court through a special
leave petition and also a petition 580 under Art. 32 of the Constitution but
without any success. This Court by its judgment dated December 21, 1962, held
that the High Court had erred in assuming jurisdiction in deciding disputed
questions involved in the petition and should have insisted on the appellant to
move the Appellate Authority provided under the Act. The petition under Art.
32, however, .was allowed by this Court and a
part of the definition of "sale" in s. 2(1) of the Act was declared
ultra vires. In the instant case, however, we are not concerned with this
aspect of the matter.
In compliance with the orders of this Court,
the appellant filed an appeal before the Appellate Assistant Commissioner of
Sales Tax which was allowed by his order dated March 6, 1963, and the case was
remanded to the Sales Tax Officer for fresh assessment after making necessary
enquiries. Thereafter the respondent Sales Tax Officer assessed the appellant
afresh by his order dated October 20, 1963, and made similar assessments for
the other periods.
Against this order the appellant moved this
Court again but ultimately withdrew the petition and filed 'a revision petition
under s. 28 of the Act to the Commissioner of Sales Tax, Madhya Pradesh. The
Commissioner, after hearing the arguments of both the parties, invited further
documents and after making further queries upheld the order of the Appellate
Assistant Commissioner of Sales Tax holding that the appellant was liable to
pay sales tax inasmuch as the contract which was entered into between the
appellant and Caltex (India) Ltd. was a pure and simple contract of agency and
not a contract of sale. The Commissioner opined that as the contract was one of
agency, the title to the property remained in the Caltex (India) Ltd. and if
the appellant used the petrol for its own purposes as agent, then such a user
would amount to a sale of the property of the Company by the agent to itself so
as to the exigible to sales tax. It is against the order of the Commissioner
dated May 5, 1970 that the appellant has come up to this Court after obtaining
We have heard counsel for the parties at very
great length and we have also gone through the documents flied by the parties
before the Commissioner and incorporated in the Paper Book. It seems to us that
the only point for decision lies within a very narrow compass. The short point
to be decided is whether at the time when the appellant was consuming the high
speed diesel oil and petrol for its own purposes, was it doing so as owner of
these articles or merely as an agent of Caltex Company ? In other words, if it
is held that as a result of the agreement between Caltex and the appellant and
the transactions following thereupon the title to the diesel or petrol passed
to the appellant by the delivery of these articles, then from that date the
appellant became owner of these articles and was entitled to use them as he
liked, because he had already paid the price of the diesel and petrol received
by it. If this be the position, then it is manifestly clear that the user by
the appellant for its own purposes may not amount to a sale which had already
taken place at a point of time when the goods were delivered by the Caltex
Company to the appellant.
On the other hand, if it is held that the
appellant was a mere 581 agent under the agreement and was selling the articles
on behalf of its principal--the Caltex Company--then any user of these articles
or properties may amount to a sale so as to be exigible to sales tax. We may
add that even then it was contended for the appellant that it would not amount
to sale, but it did not press his contention later.
The question, therefore, will have to be
determined having regard to the terms and recitals of the agreement, the
intention of the parties as may be spelt out from the terms of the documents
and the surrounding circumstances and having regard to the course of dealings
between the parties. In all the Sales Tax statutes as also the definition of
"sale" in the Act in this case, the definition given in the Sale of
Goods Act has been bodily lifted from that Act and inserted in the Tax
Statutes. In the instant case under the Madhya Pradesh Sales of Motor Spirit
Taxation Act, 1957, "sale". is defined thus:
" "sale" with all its
grammatical variations and cognate expressions means transfer of motor spirit
for cash or deferred payment or for other valuable consideration and includes
transfer of motor spirit by a society or club or any association to its
members, but does not include a mortgage hypothecation, charge or pledge;
Explanation l.---Consumption of motor spirit
by a dealer himself or on his behalf shall be deemed to be a "sale";
Explanation II.---A sale of motor spirit
deemed to be a sale inside the State within the meaning of sub-section (2) of
section 4 of the Central Sales Tax Act, 1956 (74 of 1956), shall also be deemed
to be sale inside the State for the purposes of this clause;" Thus it
would appear that in order to satisfy the conditions of "sale" under
the definition of the Act, the following conditions must be satisfied:
(i) that there should be a transfer of motor
spirit from the seller to the buyer;
(ii) that the transfer must be for valuable
consideration which may be either cash or deferred payment; and (iii) that the
transfer must not be in the nature of a mortgage, hypothecation, charge or
Under Explanation I, consumption of motor
spirit by a dealer himself or on his behalf shall be deemed to be a sale. But
this Explanation has already been held to be ultra vires by this Court in the
previous Bhopal Sugar Industries Ltd's case. Thus the essence of the matter is
that in a contract of sale, title to the property passes on to the buyer on
delivery of the goods for a price paid or promised. Once this happens the buyer
becomes the owner of the property and the seller has no vestige of title left
in the property.
The concept of a sale has, however, undergone
a revolutionary change, having regard to the complexities of the modern times
and the expanding needs of the society, 582 which has made a departure from the
doctrine of laissez faire by including a transaction within the fold of a sale
even though the seller may by virtue of an agreement impose a number of
restrictions on the buyer, e.g. fixation of price, submission of accounts,
selling in a particular area or territory and so on. These restrictions per se
would not convert a contract of sale into one of agency, because in spite of
these restrictions the transaction would still be a sale and subject to all the
incidents of a sale. A contract of agency, however, differs essentially from a
contract of sale inasmuch as an agent after taking delivery of the property
does not sell it as his own property but sells the same. as the property of the
principal and under his instructions and directions. Furthermore, since the
agent is not the owner of the goods, if any loss is suffered by the agent he is
to be indemnified by the principal. This is yet another dominant factor which
distinguishes an agent from a buyer--pure and simple. In Halsbury's Laws of England,
Vol. 1, 4th Edn., in para 807 at p. 485, the following observations are made:
"The relation of principal and agent
raises by implication a contract on the part of the principal to reimburse the
agent in respect of all expenses, and to indemnify him against all liabilities,
incurred in the reasonable performance of the agency, provided that such
implication is not excluded by the express terms of the contract between them,
and provided that such expenses and liabllities are in fact occasioned by his
employment." We have mentioned this fact, particularly because under the
agreement between the Caltex Company and the appellant the loss sustained by
the buyer has to be borne by it after delivery of the goods and the seller is
not responsible for the same. Such a special arrangement between the parties is
a factor which taken along with other circumstances points towards the
agreement being one of sale.
It is well settled that while interpreting
the terms of the agreement, the Court has to look to the substance rather than
the form of it. The mere fact that the word 'agent' or 'agency' is used or the
words 'buyer' and 'seller' are used to describe the status of the parties
concerned is not sufficient to lead to the irresistible inference that the
parties did in fact intend that the said status would be conferred. Thus the
mere formal description of a person as an agent or buyer is not conclusive,
unless the context shows that the parties clearly intended 'to treat a buyer as
a buyer and not as an agent. Learned counsel for the appellant relied on
several circumstances to show that on a proper construction of the agreement it
could not but be held to 'be a contract of sale. Learned counsel strongly
relied on a decision Of this Court in Sri Tirumala Venkateswara Timber and
Bamboo Firm v. Commercial Tax Officer, Rajahmundry,(1) where this Court held
the transaction to be a sale in almost similar circumstances. Speaking for the
Court, Ramaswami, J., observed as follows:
(1) 21 S.T.C. 313; 316 583 "As a matter
of law there is a distinction between a contract of sale and a contract of
agency by which the agent is authorised to sell or buy on behalf of the
principal. The essence of a contract of sale is the transfer of title to the
goods for a price paid or promised to be paid. The transferee in such a case is
liable to the transferor as a debtor for the price to be paid ; and not as
agent for the proceeds of the sale. The essence of agency to sell is the
delivery of the goods to a person who is to sell them, not as his own property
but as the property of the principal who continues to be the owner of the goods
and will therefore be liable to account for the sale proceeds." It is
clear from the observations made by this Court that the true relationship of
the parties in Such a case has to be gathered from the nature of the contract,
its terms and conditions, and the terminology used by the parties is not
decisive of the said relationship. This Court relied on a decision in W.T. Lamb
and Sons v. Goring Brick Company Ltd.
(1) where despite the fact that the buyer was
designated as sole selling agent, the Court held that it was a contract of sale
Lord Scrutton, with whom other Lords agreed, observed as follows:
"Now it is well known that in certain
trades the word "agent" is often used without any reference to the
law of principal and agent.
The motor trade offers an obvious example,
where persons described as "agents" are not agents in respect of any
principal, but are purchasers who buy from manufacturers and sell independently
of them; and many difficulties have arisen from this habit of describing a
purchaser, sometimes a purchaser upon terms, as an agent." In a earlier
decision of this Court in Gordon Woodroffe & Co. v. Sheikh M.A. Majid &
Co. (2) it was observed thus:
"The essence of sale is the transfer of
the title to the goods for price paid or to be paid. The transferee in such
case becomes liable to the transferor of the goods as a debtor for the price to
be paid and not as agent for the proceeds of the sale. On the other hand, the
essence of agency to sell is the delivery of the goods to a person who is to
sell them, not as his own property but as the property of the principal who
continues to be the owner of the goods and who is therefore liable to account
for the proceeds." The Bombay High Court in Daruvala Bros (P) Ltd. v.
Commissioner of Income-tax (Central)
Bombay(3) had, in almost similar facts, held that even though there were
restrictions on the assessee, the agreement being one of distribution was to be
treated as a contract of sale and not an agreement of agency. It would thus
appear that (1) L.R.  I K.B.D. 710, 717.
(2)  Supp. S.C.R. 1,34.
(3) 80 I.T.R. 213 584 even if a party is
described as agent in the agreement he may not be an agent but a buyer though
described as an agent. In fact we feel that there may be agreements which may
contain some elements of agency but may be-contracts of sale in other respects.
Learned counsel for the respondent then
relied on the decision in Foley v. Classique Coaches Ltd.(1) This authority
does not appear to be of any assistance to the respondent because in that case
the court came to a finding of fact that there was no concluded contract at all
and the agreement was merely an executory one and, therefore, the question of
determining the relationship between the parties did not naturally arise.
Similarly reliance was placed on Michelin
Tyre Company Ltd. v. Macfarlane (Glasgow) Ltd. (in Liquidation).(2) Here also
the question was decided on the peculiar terms of the agreement in question and
this authority cannot be called into aid for the purpose of deciding the
Learned counsel for the respondent also
relied on Financings Ltd. v. Stimson(3) but the facts in the aforesaid case
appear to be quite different from the facts of the present case.
Strong reliance was also placed by Mr.
Panjwani counsel for the respondent on Willcox & Gibbs Sewing Machine
Company v. Daniel S. Ewing,(4) where the Court observed as follows ::
"And it is agreed and understood that
this appointment or agency is not saleable or transferable by second party
without obtaining the written consent of first party, but such consent is to be
given providing the purchaser or other person is acceptable to said first
party." "There was some discussion at the bar as to whether Ewing
was, strictly, an agent of the company. We think he was. He was none the less
an agent because of his appointment as "exclusive vendor" of the
defendant's machines within a particular territory, or because of the peculiar
privileges granted to or the peculiar restrictions imposed upon him" It
seems to us that the law on the subject has been stated by the Court in a
different context and, therefore, this case does not appear to us to be of any
assistance in determining the question at issue in the instant case. The 'Court
in the aforesaid case had inferred agency from the mere fact that under the
agreement the sale was to operate in a limited territory. This by itself, in
our opinion, is not sufficient to lead to the inference that the agreement was
one of agency. It is (1)  2K.B.D. 1.
(2)  2 Scots. L.T. 205.
(3)  3 All E.R. 386.
(4) 35 U.S. Law. Ed. 882,884.
585 always open to the buyer to purchase
goods for a limited purpose and within the field of that limited purpose the
buyer has absolute to the property once it is delivered to him by the seller.
Learned counsel for the respondent then
relied on a decision of the Kerala High Court in Goverdhan Hathibhai & Co. v.
Appellate Assistant Commissioner of Agricultural Incometax and Sales Tax,
Trivandrum,(1). But that decision is contrary to the principles enunciated by
this Court in Sri Tirumala Venkaeswara Timber and Bamboo Firm's case (supra)
and .Gordon Woodroffe & Company's case (Supra).
Moreover, as pointed out by the Kerala High
Court in that case there were special terms and stipulations in the contract
which persuaded the .Court to hold that it was a contract of agency. We would,
therefore, like to confine the ratio of that case to the peculiar facts of that
Further, it appears that while the Kerala
High Court had expressly dissented from a decision of the Patna High Court in
Rohtas Industries Ltd. v. State of Bihar(1) and did not accept the propositions
laid down by the said Court, this Court had affirmed the aforesaid Patna High
Court decision in Rohtas Industries Ltd. v. State of Bihar(3) where it was
"We therefore agree with the view of the
High Court that clause 24 does not qualify the legal effect of the other important
clauses of the agreement, and that the cement delivered, dispatched or
consigned by the manufacturing companies to the Marketing Company or to its
orders or in accordance with its directions was sold by the manufacturing
companies to the Marketing Company ...... " In view of the observations of
this Court, therefore, the Kerala High Court decision referred to above must be
held to have been impliedly overruled.
Having discussed the law 'on the subject, we
shall now analyse the agreement in the present case and interpret the same m
accordance with the principles laid down by the various authorities referred to
above. To begin with, clauses 1 and 2 express in absolutely categorical terms
that the nature of the agreement is to sell the property in question and
nothing else. Clause 2 runs thus:
"The Company shall sell to the dealer
and the dealer shall buy from the Company the said products at the prices pre established
by the Company therefore and which are in effect on the date on which the
Diesel Oil is dispatched/or delivered by the Company." Clause 2 expressly
states that Hispeedol was to be sold and the dealer was b in the property from
the Company at prices to be fixed by the Company. The terms "buying"
and "selling" have not been used by way of a routine or formal
description of the status of the parties (1) 12 S.T.C. 464.
(2) 9 S.T.C. 248.
(3) 12 S.T.C. 615,622.
586 but appear to us to form an integral part
of the contract clearly exhibiting an intention of the nature of transaction
which the parties intended tiffs document to be, namely, that it is a contract
for sale and nothing else. We must remember that the agreement in question is a
contract for distribution of Hispeedol produced by the Caltex Company which has
a monopoly for producing a particular type of oil which it sells. A common
feature of any distribution agreement is that the seller insists on a
particular price at which the property is to be sold and impose certain restrictions
in order to protect his goodwill and ensure the quality of his goods to be
distributed through sale. The chart filed by the appellant at p. 191 of the
Paper Book would clearly show that the appellant paid the price of the bulk
supplies almost within a month of the date of delivery of the goods. This chart
"A. H. Bhiwandiwalla & Co. (Bombay)
Private Ltd., Managing Agents, The Bhopal Sugar Industries Ltd., Sehore, Cash
Debit voucher No.. 2011, dt. 1-7-1958.
"Please pay to. M/s. Caltex (India)
Ltd., Account: Petrol Diesel Oil & lubricants.
In full payment of the following bills Rs
No. 19232 dt. 9-4-58 for 1000 Gs. petrol Rs.
2920-00 No. 19283 dt. 8-5-58 for 1000 Gs. petrol Rs. 2920-00 No. 19321 dt.
29-5-58 for 1000 Gs. petrol Rs. 2920-00 8760-00 No. 17586 dt. 1-5-58 for 1000
Gs. Hispeedol Rs. 1770-00 No. 17593 dt. 7-5-58 for 1000 Gs. ,, Rs. 1770-00 No.
17610 dt. 14-5-58 for 1000 Gs. ,, Rs. 1770-00 No. 17621 dt. 18-5-58 for 860 Gs.
,, Rs. 1540-00 6850-00 -------------Rupees fifteen thousand six hundred ten
only. 15610-00 ---------------------------------------------------------For the
Bhopal Sugar Industries Ltd.
Sd/Illegible Manager. " This chart also
reveals a crucial fact, namely, that the supply of the products by the Company
was made to the appellant not on consignment basis but by way of outright sale.
It appears from the documents produced by the
appellant before the Commissioner that on inquiries made from the seller,
namely, the Caltex Company, they confirmed the fact that the goods were sent to
the buyer on the basis of outright sale. In this connection, the relevant
portion of the letter read thus:
"We refer to 'the discussion your Mr.
Mody had this forenoon with our M/s. G.H. Sani and M.R. Patankar ......
In this connection we would like to confirm
as under "1. Since the inception of your dealership, clause No. 4 of 587
our Standard Petrol Dealer Agreement does not apply to you.
2. Supplies of Petroleum Products ex Bombay
or ex our Depots in Madhya Pradesh have been made to you on the basis of
outright sale." This letter also shows that clause 4 of the Standard
Petrol Dealer Agreement did not apply to the appellant. Similarly another
letter at P. 167 of the Paper Book written by the Manager of the appellant to
the Commissioner of Sales Tax clarified the position that the appellant had
purchased the goods on outright basis. The relevant portion of this letter may
be extracted thus:
"M/s Caltex (India) Ltd., never supplied
goods i.e. petrol & Hispeedol on consignment basis.
We had always purchased the goods from them on
out-right purchases against our orders placed with them from time to time.
Sample copies of our correspondence relating to placement of orders in respect
of petrol & hispeedol are enclosed herewith for your perusal." The
appellant had filed detailed correspondence to prove the facts clarified before
the Commissioner. This aspect of the matter was further reiterated by the
appellant in his letter to the Commissioner' dated November 7, 1969, the
relevant portion of which may be extracted as follows:
"M/s Caltex (India) Ltd. supplied us
petrol & hispeedol against our orders placed with them from time to time
and they billed us immediately thereafter at the bulk rates prevailing from
time to time ....... Payments were also made to M/s. Caltex (India) Ltd. on
outright basis immediately after receipt of the goods .......
All books of account, all files containing
orders, bills, payment vouchers and correspondence are produced before you for
your verification." This letter further shows that all the vouchers, correspondence
etc. had been produced 'by the appellant in proof of the recitals mentioned in
the letter. It is, therefore, clear that the moment the appellant received the
supplies of Hispeedol from the seller, the Hispeedol became the property of the
appellant and the appellant was absolutely free to sell the Hispeedol and
petrol to anyone it liked at the prices fixed within the territory specified in
the agreement. Thus the title to the property passed to the appellant the
moment it took delivery of the same. It is, therefore, manifest that having
taken delivery of the property if the appellant was using it for its own
consumption it was using its own property in which the Company had no title at
all and such a user therefore could not, by any stretch of imagination, be
treated as a sale.
588 Another very important circumstance which
clearly shows that the contract was one of sale and not of agency is the fact
that after having taken delivery of the petrol and Hispeedol the appellant sold
the same to its various customers, not even mentioning that the property
belonged to Caltex Company but issued cash memos in its own name which clearly
indicates that after taking delivery of the property the appellant became the
absolute owner thereof and represented itself to be the owner of the property
and sold it not as the property of the Company but as its own property.
This fact is clearly proved, by the cash
memos and credit vouchers produced by the appellant at pp. 195-197 of the Paper
Book. The cash memo describes the Bhopal Sugar Industries Ltd. as the owner of
the goods and so does the credit voucher. This, therefore, conclusively shows
that the agreement could not have been an agreement of agency because the
essential distinction between an agreement of sale and agreement of agency is
that in the former case the property is sold by the seller as his own property
and in the latter case the property is sold by the agent not as his own
property but as the property of his principal and on his behalf.
Another important circumstance which
indicates that the goods were sold to the appellant is that the appellant in
his letters produced on further queries made by the Commissioner of sales Tax
made a clear statement that the appellant had borne the losses due to leakage,
driage, evaporation etc. during the course of storage at the pumps of the
appellant and the seller Caltex Company did not reimburse the appellant for
such losses. The relevant portion of this letter may be extracted thus:
"As we had purchased petrol &
hispeedol on out-right purchase and sale basis from M/s Caltex (India) Ltd., we
borne the entire losses arising out of entire expenses or handling at our
receiving point. We also borne the losses due to leakages, driage and driage
and/or evaporation during the course of storage at our pumps. M/s Caltex
(India) Ltd., did not reimburse us for any loss." If the appellant would
have been agent of the Caltex then under the law of agency the agent had an
indefeasible right to be reimbursed or indemnified by the principal for the
losses caused. But as the appellant bore the losses personally, this clearly
indicates that the properties after being sold to it were its absolute
properties and if any losses occurred they were borne by the appellant as owner
and not by the seller.
Another important condition in the agreement
was clause 23 at p. 130 of the Paper Book which runs thus:
"The dealer shall at any time, upon
request of the Company make from his stocks, deliveries of reasonable
quantities of said products for account of the Company, to consumers at such
points within the territory as the Company may designate. In consideration of
his making such deliveries, the 589 dealer shall be reimbursed in full for all
transportation expenses, and receive in addition thereto, such allowances for
handling as may then currently be in effect under this agreement." Under
this clause the appellant was required to deliver reasonable quantities of
products at the request of the Company to consumers designated by the Company
at such points within the territory as may be specified. In consideration of
complying with the request, the seller Company agreed to reimburse the
appellant in full for the supplies and the appellant was also entitled to be
paid transportation expenses and handling allowances as may have been incurred
by it. This is another decisive factor which negatives the theory that the
agreement could be one of agency. Indeed such a stipulation in the agreement is
wholly inconsistent with the position of the appellant being an agent for in
that case there was absolutely no scope for such a stipulation and the seller
Company as a principal of the agent could have instructed it to supply the
goods or petrol to designated customers and there was no question of the agent
being reimbursed, because the property supplied belonged to the principal and
was delivered to certain persons on the instructions of the principal. This
clause, therefore, is yet another important factor which shows that the agreement
was intended to be a contract of sale rather than a contract of agency.
Furthermore, the agreement contains a clear
and unequivocal declaration by the seller Company that the status of the
appellant would not be that' of an agent.
In this connection, clause 15 of the
agreement runs thus:
"Nothing in this agreement contained
shall in any way operate by implication or otherwise to constitute the dealer
as agent of the Company in any respect and for any purpose whatsoever, and the
dealer shall have no right or authority to assume or create any obligation of
any kind express or implied on behalf of the Company in any other respect
whatsoever." This clear declaration on the part of the parties leaves
no" room for doubt that the agreement was intended to be a contract for
sale and that the appellant was not only not regarded as an agent but was
expressly excluded from the category of an agent.
The cumulative effect of the circumstances
mentioned above leads to the inescapable conclusion that the Hispeedol had been
sold to the appellant and not held by it merely as an agent of the Caltex
Company. The petrol agreement also which has been placed before us contains
similar stipulations and it was not disputed by counsel for the respondent that
if the Hispeedol Agreement is held to be a contract of sale, then the same
would have to be said of the Petrol Agreement also. Thus the principles which
would make the contract of the purchase of Hispeedol a contract of sale would
apply mutatis mulandis to the Petrol Agreement also.
Learned counsel for the respondent, as also
the Commissioner, have relied on certain stipulations in the agreement which
show that the 11--502 SCI/77 590 agreement was one of agency. The first
circumstance relied in this connection was that under clause 12 of the agreement,
the appellant was to maintain sale, service and other record as may be
considered necessary and was to furnish the Company when called upon statements
of sales, financial and other matters as and when required by the Company.
Clause 12 runs thus:
"The dealer shall maintain sales, service,
and other record as may be considered necessary by the Company and shall
furnish the Company when called upon with all such sales, financial and other
statements as may be required by and in forms satisfactory to the
Company." In our opinion this clause does not at all conclusively show
that the appellant was an agent of the Company. The object of inserting this
clause in the agreement appears to be that during the term of the agreement the
appellant undertook to maintain proper sales, service and other record so that
the Company's reputation may not suffer and if any statement regarding the
sales or other matter were required by the Company, they were not required
because the appellant was the agent of the Company but it was because the
Company wanted to keep itself fully informed of the proper conduct of the
business by the appellant in order to maintain its goodwill. It is manifest
that if during the period of the agreement there were serious complaints
against the appellant regarding the misuse of the privileges given to it under
the agreement, the Company could under the terms of the agreement terminate the
agreement so as to 'save its reputation. Read as a whole, this stipulation does
not amount to make the appellant liable to render regular accounts to the
Company inasmuch as the statements called for were required only for a very
limited purpose, viz., to prevent the appellant from misusing his privileges
and thereby jeopardising or harming the reputation of the Company. In these
circumstances, therefore, the argument based on this clause appears to be of no
assistance to the counsel for the respondent.
Clause 8 of the agreement clearly shows that
the appellant had been loaned properties belonging to the Company like petrol
pumps and their accessories etc. and it was in respect of these properties
which had been given to the dealer for working the petrol pumps that the
statements of account were called for from the appellant. This appears to be
the modus operandi adopted by the seller Company in respect of all its
distributors. There is no stipulation in the agreement which requires or
enjoins on the appellant to submit accounts of the Hispeedol or petrol which he
may have sold to various customers, after having taken delivery of the same
from the Company. In these circumstances, therefore, this argument of the
learned counsel for the respondent must be overruled.
Another circumstance relied upon by the
respondent was the fact that the appellant was under the terms of the agreement
to sell the goods at a price fixed and not higher or lower than that. We have
already indicated that when a Company enters into a distribution agreement it
always fixes a particular price in order to protect its goodwill 591 and in
order to control the market. Such fixation of the price by itself would not be
a restriction which would take away the freedom of contract of sale. Such a
stipulation is found in almost all the agreements entered into between the
monopolist Companies and their distributors. The respondent would not,
therefore, be justified in treating this circumstance in order to show that the
agreement was one of agency.
Similarly the argument that the appellant was
to sell the goods in a territory fixed by the Company does not show that the
agreement was not of sale because this is also one of the common features of a
distribution agreement. The question to be determined is not what was the
territory fixed by the seller Company but whether there was any limitation to
sell to any particular person within the territory for which the properties
were sold to the appellant. On this point there is absolutely no restriction.
It was further contended that under clause 26
of the agreement the Company agreed to pay a commission and certain allowances
to the appellant which shows that the appellant was an agent The relevant
portion of clause 26 runs thus:
"In consideration of the dealer undertaking
faithfully, to carry out their part of the Agreement as set for the above, the
Company undertakes to pay the dealer such commission and allowances as the
Company in its sole discretion shall think fit. The rate of commission and
allowances that are current at the time are setforth in the schedule attached
hereto, but the Company reserve the right to alter such corn. mission and allowances
as and when they. think fit without any previous notice to the dealer and
without assigning any reason therefore." A perusal of this clause as a
whole would show that the use of the words "commission and
allowances" is not to indicate agency, but to indicate certain special
benefits which the Company wanted to confer on its distributors. Furthermore,
then payment of commission by itself is not conclusive to show that the
agreement was one of agency. In Belthezar and Son v.E.M. Abowath, (1) Lord
Dunedin observed as follows:
"It comes to this, that all the
documents show on the face of them a contract as between principals. The mere
mention of commission in the contract as signed is not in any way, as pointed
by the learned Judges of the Court of Appeal, inconsistent with the relation
being between principal and principal." This decision was followed by the
Calcutta High Court in Ganesh Export and Import Company v. Mahadeolal
Nathmal(2) and we find ourselves in complete agreement with the view taken by
the Calcutta (1) A.I.R. (1919) P.C. 166, 167.
(2) A.I.R. (1956) Cal. 188 592 High Court.
For these reasons, therefore, the argument by learned counsel for the
respondent is not tenable in law.
Finally, reliance was placed on clause 18 of
the agreement appearing at p. 126 of the Paper Book which requires the dealer
to furnish security for the due observance and performance of the stipulations
contained therein. Such a stipulation also does not by itself show that the
agreement was one of agency.
The present agreement undoubtedly contains
some elements of agency also, but the main question which has to be determined
in this case is whether or not at the point of time when the appellant was
consuming the Hispeedol or petrol for its own purposes it was acting as an
owner of the goods or as agent of the seller Company. From the facts and
circumstances discussed above,-we have shown that the appellant, after taking
delivery of the goods, was the owner of the goods and if it consumed the same
for its own purposes it was not doing so as agent but as owner which it was
fully entitled to do. In this view of the matter, the quantities of petrol
consumed by the appellant for its own purposes would not constitute a sale so
as to be exigible to sales tax. We have carefully perused the order of the
Commissioner and find that the Commissioner has taken an erroneous view of the
law and has drawn legally wrong inferences from the various stipulations
contained in the agreement. The Commissioner has also not given effect to well
established legal principles in interpreting the agreement.
For the reasons given above, we are unable to
maintain the order of the Commissioner which suffers from manifest errors of
law apparent on the face of the record. We, therefore, allow these appeals, set
aside the order of the Commissioner dated May 5, 1970, and hold that the use of the Hispeedol and petrol by the appellant for its own purposes is not
exigible to sales tax and the proceedings for imposing sales tax on the
appellant are hereby quashed. The appellant will be entitled to its costs
P.B.R. Appeal allowed.