PETITIONER:
BHOPAL SUGAR INDUSTRIES LTD.
Vs.
RESPONDENT:
SALES TAX OFFICER, BHOPAL
DATE OF JUDGMENT14/04/1977
BENCH:
FAZALALI, SYED MURTAZA
BHAGWATI, P.N.
UNTWALIA, N.L.
CITATION:
1977 AIR 1275 1977 SCR (3) 578
1977 SCC (3) 147
ACT
Sales Tax--Dealer consuming goods for his own
purposes--If a sale exigible to tax.
HEADNOTE
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 deliv-
ery, 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 novestige 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 infer-
ence 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. [1932] l KBD 710, 717, Gordon Wood-
roffe & Co. v. Sheikh M. ,4. Majid & Co.
[1966] Supp. SCR 1, 3-4 and Daruvala Bros. (P)
Ltd. v. Commissioner of Income-tax (Central)
Bombay, 80 ITR 213 referred to.
Foley v. Classigate Coaches Ltd. [1934] 2 K B
D I, Michelin Tyre Company Ltd. v. Macfar-
lane (Glosgow) Ltd. (in Liquidation), [1917] 2
Scots. L.T. 205, Financings Ltd. v Stimson.
[1962] 2 All. F.R. 386,
579
Willcox & Gibbs Sewing Machine Company v.
Daniel S. Ewing, 35 U.S. Law. Ed. 882, 884
held inapplicable.
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 stipula-
tion of price which is generally a common term in all agree-
ments 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 appel-
lant 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 custom-
ers showed that the agreement was a contract of sale and not
of agency.
Further, the term requiring the dealer to furnish state-
ments 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 "commis-
sion 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 ap-
proved.
JUDGMENT
CIVIL APPELLATE JURISDICTlON: Civil Appeals Nos. 1135-
1138 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 for Re-
spondent.
The Judgment of the Court was delivered by
FAZAL ALl, J.--These appeals by special leave are di-
rected against the order of the Commissioner of Sales Tax
dated May 5, 1970 rejecting the revision filed by the appel-
lant before him against the order or’ the Appellate Assist-
ant 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 constitu-
tionality 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 suc-
cess. 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 appel-
lant filed an appeal before the Appellate Assistant Commis-
sioner 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 en-
quiries. 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 Appel-
late Assistant Commissioner of Sales Tax holding that the
appellant was liable to pay sales tax inasmuch as the con-
tract 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 he 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 special leave.
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 deci-
sion 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 appel-
lant 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 par-
ties. 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 valu-
able 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
pledge.
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 revolution-
ary 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 Eng-
land, 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 per-
formance of the agency, provided that such
implication is not excluded by the express
terms of the contract between them, and pro-
vided 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 ’sell-
er’ 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 appel-
lant 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 Venkates-
wara 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. [1932] I K.B.D. 710, 717.
(2) [1966] 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 author-
ity does not appear to be of any assistance to the respond-
ent because in that case the court came to a finding of fact
that there was no concluded contract at all and the agree-
ment was merely an executory one and, therefore, the ques-
tion 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 present
case.
Learned counsel for the respondent also relied on Fi-
nancings 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 coun-
sel 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 deter-
mining 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 agree-
ment was one of agency. It is
(1) [1934] 2K.B.D. 1.
(2) [1917] 2 Scots. L.T. 205.
(3) [1962] 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 deci-
sion of the Kerala High Court in Goverdhan Hathibhai & Co.
v. Appellate Assistant Commissioner of Agricultural Income-
tax 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 case.
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 observed thus:
"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, despatched or consigned by the
manufacturing companies to the Marketing
Company or to its orders or in accordance
with its directions was sold by the manufac-
turing 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 preestablished by the
Company therefore and which are in effect on
the date on which the Diesel Oil is des-
patched/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 agree-
ment is that the seller insists on a particular price at
which the property is to be sold and impose certain restric-
tions in order to protect his goodwill and ensure the quali-
ty 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 runs thus:
"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 .-np.
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 appel-
lant 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 out-
right 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 immedi-
ately 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 contain-
ing orders, bills, payment vouchers and
correspondence are produced before you for
your verification."
This letter further shows that all the vouchers, corre-
spondence 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 any one 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 consump-
tion 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 custom-
ers, 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 repre-
sented 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 Indus-
tries 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 Commis-
sioner of sales Tax made a clear statement that the appel-
lant had borne the losses due to leakage, driage, evapora-
tion 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 person-
ally, 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 con-
sumers 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 addi-
tion 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 consid-
eration 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 transporta-
tion 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 obliga-
tion of any kind express or implied on behalf
of the Company in any other respect whatsoev-
er."
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 stipu-
lations and it was not disputed by counsel for the respond-
ent that if the Hispeedol Agreement is held to be a con-
tract 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 Commis-
sioner, 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 agree-
ment, 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, serv-
ice, 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 Compa-
ny. 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 appel-
lant 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 ap-
pears 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 deliv-
ery of the same from the Company. In these circumstances,
therefore, this argument of the learned counsel for the re-
spondent 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 circum-
stance 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 limi-
tation 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 under-
taking 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 allow-
ances 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 princi-
pal."
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 agree-
ment 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 ele-
ments 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 appel-
lant, 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 infer-
ences from the various stipulations contained in the agree-
ment. 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 impos-
ing sales tax on the appellant are hereby quashed. The
appellant will be entitled to its costs throughout.
P.B.R. Appeal allowed.
?593