ivil Appeal No 4159 of 1984
From the Judgment and Order dated 201
1984 of the Customs Excise and Gold Control Appellate Tribunal New Delhi in Appeal No EDSBT 64481 A Order No A2984
PP Rao Rameshwar Nath DN Mehta and Ravinder Nath for the Appellants
VC Mahajan Arun Madan and P Parmeshwaran for the Respondent
The Judgment of the Court was delivered by SABYASACHI MUKHARJI J
This is an appeal under section 35 Lb of the Central Excises  Salt Act 1944 hereinafter referred to as the Act  from the judgment and order of the Customs Excise  Gold Control Appellate Tribunal herein after referred to as the Tribunal  dated the 20th January 1984
The appellants are the manufacturers of Supercem Water proof Cement Paint  hereinafter called as the Product  and other allied products in their factory at Madras
They manufacture and market this product throughout India
It is stated that the appellants are a small manufacturing firm with no branches andor sales offices in any other State city or town
In these circumstances an agreement for sale described as an agreement of sale  dated 1st May 1962 was entered into with Gillanders Arbuthnot  Co Ltd of Cal cutta hereinafter called Gillanders 
The said company has a very big sales organisation having its offices located at all important places in the territory of Union of India and they market goods of all types not only of the appellants herein but also of several other reputed manufacturers through their well staffed offices in all the States of India
The appellants vide their letters dated 23rd April 1979 and 15th May 1980 to the Excise authorities had claimed a refund of Rs23915363 on account of excess excise duty paid on the assessable value on the basis of price at which the Gillanders had sold the products to its customers during the period July 1977 to March 1979
Both the Assistant Collector by his order dated 29th May 1980 and the Collector by his order dated 24th March 1981 re jected the contention of the appellants and held that the assessable value is the price at which Gillanders sold the goods
786 The Tribunal in its order dated 20th January 1984 referred to relevant clauses in the said agreement dated 1st May 1962 and came to the conclusion that it was abundantly clear from the conditions that the title to and the owner ship in the goods consigned to Gillanders was not to pass to them
According to the Tribunal a sine qua non of a sale is that the title should pass from the seller to the purchaser
When once that were not so according to the Tribunal then it was futile to contend that it was an agreement for sale
The Tribunal on an analysis of conditions of agreement came to the conclusion that the true character of the agreement was that it was an agreement for sole selling agency and not an agreement for sale
The Tribunal also referred to the expression a related person  in the definition given by Sec
44c of the Act and held that Gillanders was a related person and therefore the assessable value of the goods for levy of excise duty must be on the basis of the price at which Gillanders ordinarily sold these in the course of wholesale trade less the transportation cost and other permissible deductions such as duty of excise and sales tax if any subject to proof
Aggrieved thereby the appellants have come up in this appeal to this Court
The first question that was canvassed and which requires to be determined is whether the agreement dated 1st May 1962 is an agreement for sale or is one for sole selling agency
In the said agreement the appellants have been de scribed as a partnership firm carrying on business at Madras and referred to as The Manufacturer  and Gillanders of Calcutta described as The Selling Agents 
The agreement inter alia stated that the selling agents had agreed to stock adequate quantities of the product for the purpose of sale thereafter
The manufacturer however agreed to accept return of all stocks held by the selling agents for a period of more than two years and replace such stocks free of all charges provided the lids of the containers were intact and sealed
The agreement further stated that all consignments would be despatched by the manufacturer at Railway risk
In case there was any damage or shortage in transit the selling agents would lodge a claim on the Railways provided howev er that the manufacturer should take all suitable actions for recovery of the damages from the Railway authorities and should reimburse the selling agents all losses and damages that they might suffer in the premises
It was further agreed that in consideration of the premises the manufac turer should pay the selling agents a discount namely 17 12  on the transfer prices of all materials supplied against the orders received from the selling agents 787 from its offices at Calcutta Kanpur Delhi and Bombay 18 on the transfer prices of all materials supplied against the orders received from the selling agents from its Madras Office
It also provided for an additional cash discount of 1 12  on the net transfer price that is to say transfer price less the discount specified above provided the selling agents paid the price of the goods supplied by the manufac turer within 30 days from the date of the bills by the manufacturer in respect of orders placed by the selling agents from its offices at Calcutta Bombay Madras and Delhi and within 45 days from the date of the bill by the manufacturer in respect of orders placed by the selling agents from its Kanpur Office
It also provided for an additional turnover discount of 1 on the transfer prices over and above the discount specified above provided the total sales calculated at the selling prices exceeded Rs 4 lakhs per annum and 1 12 on the transfer prices on such amount exceeding Rs 4 lakhs per annum
In calculation of the turnover figure of Rs 4 lakhs the orders received by the manufacturer directly from the Government would not be taken into consideration
The manufacturer would normally the agreement provided expect the selling agents to pay all bills within 60 days from the date of such bills to the selling agents
The selling agents agreed to send to manu facturer the necessary C  Declaration Forms under the Central Sales Tax Act as quickly as possible in respect of sales made directly to the selling agents
The manufacturer further agreed to supply the selling agents with all neces sary publicity materials and to advertise at their own cost at regular intervals through the media of the daily press trade journals Government publications and cinema slides and in all such advertisements should mention that the selling agents were the sole selling agents of the products
The manufacturer also agreed to supply the selling agents reasonable quantities of sample free of charge
All expenses such as godown rent transport charges postal and telegram charges bank commission etc connected with the sales of the products it was stipulated would be borne by the selling agents
It was inter alia provided that the sell ing prices and transfer prices of the product would be mutually agreed to from time to time between the manufactur er and the selling agents
Current selling prices and trans fer prices were set out in the schedule to the agreement
It was stipulated also that the selling agents might allow any discount to any dealer at their discretion
The manufacturer agreed to execute and despatch orders to all dealers outside the State of Madras provided firm instructions were re ceived to that effect from the selling agents to eliminate unnecessary handling charges
The agreement provided that in such cases the manufacturer would credit the selling agents with their usual commission after deducting therefrom any discounts which 788 might be allowed to the dealer on the specific instructions of the selling agents
The manufacturer further agreed to execute such orders against the guarantee of the selling agents
In the case of direct orders to dealers outside the State of Madras the selling agents might quote either FCR station of despatch or destination terms
If the goods supplied by the manufacturer were found to be sub standard goods or inferior in quality the manufacturer should at his own cost take back the goods and replace the goods of satisfactory marketable quality at its own cost
The manufacturer should not be responsible for failure to deliver or for any delay in delivery if such failure or delay was due to act of God or enemies of the State wars revolution embargo riots civil or political disturbances strikes lockouts declared due to circumstances beyond the control of the manufacturer shortage of labour cut or failure of power supply or service force majeure or any other cause beyond their control
The agreement it was stipulated by clause 19 thereof would remain in force for one year from the date of the agreement
But the parties had the fight to terminate the agreement by giving three months notice in writing to either side
It was further stipulated that if the agreement was terminated whether by the manufac turer or by the selling agents the manufacturer should accept return of all unsold stocks lying with the selling agents at their various branches and to reimburse the sell ing agents with the net value of such stocks at the transfer prices in force on the date of the termination of the agree ment
There was arbitration clause and other clauses which are not material for the present purpose
The Tribunal analysed the agreement and emphasised that Gillanders were described as sole selling agent of the product of the appellants throughout India
It also noticed that the appellants were to supply to the Gillanders with advertisement material
The Tribunal also noted the clause which provided that the stocks left over unsold beyond two years from their receipt with Gillanders could be returned to the appellants who were bound to replace these
The Tribunal noticed that it was not the appellant who was to prefer claims for recovery of damages from the carriers
The Tribunal referred to the clause which stipulated that Gil landers were to promote sales of the product throughout India and were not to handle sales of any other material likely to conflict with the sales of the appellants  product
It noted that any reduction in price during the currency of the agreement was to be duly reflected in the price of stock lying unsold with Gillanders
Although the appellants retained the right of sale directly to large Government consumers Gillanders were to follow up such 
transactions and were to be paid an over riding commission of 2 12
789 Where however Gillanders tendered for Government supplies and followed it up they were to be paid a commission of 5
In all other cases they were to earn a commission de scribed however as a discount and additional cash discount apart from total sales discount in case where total sales exceeded Rs 4 lakhs on the orders received from Gilland ers
The Tribunal also referred to the clause which provided that on termination of the agreement by either party unsold stocks lying with the Gillanders were to be returned to the appellants
On an analysis of the aforesaid aspects of the clauses the Tribunal came to the conclusion that the title to and ownership of goods continued with the appellants and did not pass to the Gillanders
In order to be sale the title should pass from the seller to the purchaser for a price
If it is not so the Tribunal noted then it was not sale
The Tribunal came to the conclusion that it was an agreement for sole selling agency and not an agreement for sale
The question is whether the Tribunal was right on this aspect
On behalf of the appellants Shri PP Rao contended that it has to be emphasised that there was no flow back of the profit to the manufacturer and that was absent in the instant case
He also referred to the fact that there were two prices transfer price and selling price and there was good deal of difference between these prices
He submitted that read in the proper perspective there was no agency
He emphasised that there was stipulation for payment of sales tax and these were separately specified one was described as selling agent and the second one the real purchaser
It is well settled that in a situation like this wheth er there was an agreement for sale or an agreement of agen cy must depend upon the facts and the circumstances and the terms of each case
Such facts and terms must be judged in the background of the totality of the circumstances
All the terms and conditions should be properly appreciated
It is also correct that though the appellants described the Gil landers as selling agent but that is not conclusive
And it is also correct to state that the difference of the prices between the transfer and the selling prices is suggestive of an outright sale
In WT Lamb and Sons vs Goring Brick Company Ltd  by an agreement in writing certain manufacturers of bricks and other building materials appointed a firm of builders  merchants sole selling agents of all bricks and other materials manufactured at their works
The agreement was expressed to be for three years and afterwards continuous subject to twelve months  notice by either party
While the agreement was in force the manufacturers informed the merchants that they 790 intended in the future to sell their goods themselves with out the intervention of any agent and thereafter they effected sales to customers directly
In an action by the merchants against the manufacturers for breach of the agree ment it was held both by Justice Wright in the Trial Court and on appeal by the Court of Appeal that the effect of the agreement was to confer on the plaintiffs the sole right of selling the goods manufactured by the defendants at their works so that neither the defendants themselves nor any agent appointed by them other than the plaintiffs should have the right of selling such goods
In those circum stances it was held that the agreement was one of vendor and purchaser and not of principal and agent
Lord Justice Scrutton was of the view that in certain trades the word agent is often used without any reference to the law of principal and agent
Lord Justice Scrutton was of the view that the words sole selling agent in the contract had a distinct meaning implying that the manufacturers were to sell to no one but the merchants who paid them the fixed price and the merchants sold and they were the only per sons to sell to various builders and contractors
Lord Justice Slesser was of the view that the agreement in the present case was somewhat difficult to understand because in one and the same document the same parties were described as merchants and as sole selling agents the first being a correct but the second one an incorrect description according to the Lord Justice
It was held that the agree ment was one of vendor and purchaser
Referring to some of the contract terms in the instant case Shri Rao submitted that in this case also the terms referred to by the Tribu nal and emphasised before us by Shri Mahajan learned coun sel for the respondent were merely indicative of the fact that the parties described a purchase upon terms  as sole selling agent
It was an agreement whereby the purchaser upon terms was described as sole selling agent submitted Shri Rao
This Court had occasion to consider this aspect in Gordon Woodroffe  Co vs Sheikh MA Majid  Co In that case the respondent was a trader in hides and skins and the appellant was an exporter
During the period January to August 1949 there were several contracts between them
The contracts mentioned that the appellant was buying the goods for resale in UK
The price quoted was CIF less 2 12
The contracts also provided that time should be the essence of the contract that the sales tax was on respondent s account that the respondent was answerable for weight as well as quality that there should be a lien on the goods for moneys advanced by the appellant and that any dispute regarding quality should be settled by arbitration according to the customs of the trade 791 in the UK
The course of dealing between them showed that before the goods were shipped these were subjected to a process of trimming and reassortment in the godowns of the appellant with a view to make these conforming to London standards that the goods were marked with the respondent s mark and that premiums were paid to the respondent in case the goods supplied were of special quality
The respondent filed a suit on the original side of the High Court praying that an account should be taken of the dealings between himself and the appellant on the ground that the appellant was his agent
The appellant s case was that there was an outright purchase of the respondent s goods and that the appellant was not an agent of the respondent
The trial Judge dismissed the suit
On appeal the High Court held that the appellant acted as a del credere agent of the respondent and directed the taking of accounts
In appeal to this Court it was contended by the appellant that the terms of the contracts and the course of dealing between the parties showed that the appellant was not the agent of the respondent but was an outright purchaser of the goods and that there was a settled account between the parties which the respondent could not reopen
This Court held that the appellant was the purchaser of the respondent s goods under the several contracts and not his agent for sale and there fore the view taken by the High Court was not correct
It was reiterated that the essence of sale is the transfer of the title to the goods for price paid or to be paid where as the essence of the 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 the agent would be liable to account for the proceeds
On the terms of the contract and the course of dealing between the parties the contract was not one of agency for sale but was an agreement of sale
The appellant purchased the goods from the respondent at 2 12  less and sold them to the London purchasers at the full price so that the 2 iii  was its margin of profit and not its agency commission
This point was emphasised by Shri Rao as a point similar to the instant case
This Court held therein that the fact that the goods were sent with the respondent s mark that the premium was paid outside the terms of the contract that the appellant considered it fair and just to pay the whole of the premium to the respondent or to share it with him and that additional burden with respect to weight and quality was thrown on the respondent had no significance in deciding the nature of the contract
This Court was also of the opinion that the clause with regard to lien was consistent with the transaction being an outright sale because the appellant was acting as creditor of the respondent and charged interest on advances only till the date of shipment of the goods when it became 792 the purchaser of the goods from the respondent
It was held that an agent could become a purchaser when the agent paid the price to the principal on his own responsibility
This was another aspect which was emphasised in the facts of the present case by Shri Rao
In that case however before the goods were shipped to London these were subjected to a process of trimming and reassortment in the godown of the appellant with a view to make them conform to London stand ards
In that process the defendants often called upon the plaintiff to replace the pieces found defective
If the defendants were merely acting as agents this Court ob served the process of trimming and reassorting in the godowns to make the goods conform to London standards and specifications would be unnecessary for in that case the defendants were merely bound to ship the goods as these were delivered to them
Another important feature of the transac tion was that in several contracts time was fixed for delivery of the goods
This Court found that the defendants were acting only as the agents for the sale there was no reason why there should be a stipulation that time should be the essence of the contract
On behalf of the plaintiff reference was also made to the fact that the contract pro vided for a lien on all the goods covered by the contracts for all moneys advanced by the defendants including ex penses incurred and interest thereon
But it was emphasised that in making such advances the defendants were only acting as creditors of the plaintiff and were therefore entitled to charge interest on such advances till they actually purchased the goods from the plaintiffs
The Court found that the primary object of the contract was that there was a purchase by the defendants from the plaintiff of the goods for resale in the UK and in keeping with that ob ject the buyer stipulated with the seller for delivery of the goods abroad and for that purpose adopted a cif form of sale
This Court referred to the principle that an agent could become a purchaser when an agent paid the price to the principal on his own responsibility
Reference was made to the passage from Blackwood Wright Principal and Agent  Second Edn page 5 at page 10 of the Report where it was stated that in commercial matters where the real relation ship was that of vendor and purchaser persons were some times called agents when as a matter of fact their rela tions were not those of principal and agent at all but those of vendor and purchaser
If the person called an agent  was entitled to alter the goods manipulate them to sell them at any price that he thought fit after these had been so manipulated and was still only liable to pay them at a price fixed beforehand without any reference to the price at which he sold them it was impossible to say that the produce of the goods so sold was the money of the con signors or that the relation of principal and agent 793 existed according to this Court in that case
Reliance was also placed on Tirumala Venkateswara Timber and Bamboo Firm vs Commercial Tax Officer Rajahmundry   where the concept of sale  in the back ground of the Andhra Pradesh General Sales Tax Act 1957 was considered
At page 480 of the report this Court observed that 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 and make over either the sale proceeds or the goods to 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 trans feror 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 these 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
The true relationship of the parties in each 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 legal relationship
Shri Mahajan learned counsel appearing for the respondent drew our attention to Section 182 of the  and submitted and in the circumstances of this case the clauses emphasised by the Tribunal clearly established that this was an agreement of agency and not a sale
As mentioned hereinbefore it depends on the facts and circumstances of each case to determine the true nature of the dealings between the parties
In the instant case the most important fact suggesting agency was the clause which enjoined that the stocks left over unsold beyond two years from their receipt could be returned to the appellants who were bound to replace these
Shri Rao however suggested that the appellants were manufacturing paint which was liable to loose its efficacy and quality after lapse of time and as the appellants were keen for its reputation such a clause was inserted to ensure that the bad quality goods or stale goods did not through Gillanders go to the market and damage the reputation of the appellants
This should be considered with the fact that the appellants were to prefer all claims for recovery of damages from the carriers and any reduction in price during the currency of the agreement was to be duly reflected in the price of stock lying unsold with Gillanders and the obligation that on the termination of the contract by either the appellant or Gillanders unsold stocks lying with the latter were to be returned to the former
In 794 the aforesaid light we are of the opinion that the Tribunal was right in considering this agreement as the agreement for sole selling agency and not as an outright sale
If that is the position then the first ground in our opinion taken by the Tribunal cannot be assailed
Shri Rao had contended that the Tribunal was wrong in holding that Gillanders were related persons in terms of Section 44c of the Act
He submitted that the concept of having interest directly or indirectly in the business of each other  has to be judged independently of the transac tion in question
He drew our attention to the various authorities for the proposition that the purpose of intro duction of definition of a related person by the Central Excises and Salt Amendment Act 1973 to contend that the distributors have to be related and that such relationship ought to be found out independently of the transaction in question
Our attention was drawn to the observations of this Court in AK Roy vs Voltas Ltd   where at page 1093 of the report this Court noted that the appellants had contended that the agreements with the whole sale dealers conferred certain extra commercial advantages upon them and so the sales to them were not sales to independent purchasers
Our attention was also drawn to the observations of this Court that decisions cited before this Court in the above case were correct in so far as these held that the price of sales to wholesale dealers would not represent the wholesale cash price  for the purpose of section 4a of the Act merely because the manufacturer had entered into agreement with them stipulating for commercial advan tages
It was laid down that if a manufacturer were to enter into agreements with dealers for wholesale sales of the articles manufactured on certain terms and conditions it would not follow from that alone that the price for those sales would not be the wholesale cash price  for the pur pose of section 4a of the Act if
the agreements were made at arms length and in the usual course of business
This however Mr Rao related only in explaining the state of law before the Amendment Act 22 of 1973
Our attention was also drawn to the observations of this Court in Union of India  Ors
vs Bombay Tyre International Ltd  where this Court explained the pur pose of the introduction of related person  in the new section 44c and the transactions of related person covered under section 44c of the Act after amendment
In that context it was contended that where there was such rela tionship independent of the transaction in question which conferred certain additional or extra commercial advantages only on the persons involved in such relationship could be considered to be related persons
It 795 was submitted that in the instant case that was not so
Our attention was drawn to the observations of this Court in Union of India and others vs Atic Industries Limited   at page 937 of the report where this Court held that on a proper interpretation of the definition of relat ed person  in section 44c the words relative and a distributor of the assessee did not refer to any distribu tor but they were limited only to a distributor who was a relative of the assessee within the meaning of the 
So read the definition of related person was not unduly wide and did not suffer from any constitutional infirmity
This Court explained the nature of relationship required by the persons to have interest directly or indi rectly in the business of each other  under section 44c of the Act
Our attention was also drawn to the observations of this Court in Collector of Central Excise Madras vs TI Millers Ltd Madras  TI Diamond Chain Madras  Having regard however to the fact that we have come to the conclusion that the Tribunal was right in holding that the transaction with the Gillanders was not a transaction of sale but an agreement for agency there was therefore no sale in favour of Gillanders as contended for the appel lants
If that is the position then the first sale was by the Gillanders to the customers of the market
Then the price of that sale would be the assessable value under section 4 in this case
The decision of the Tribunal is therefore right in any view of the matter and this other aspect of the matter referred to by the Tribunal is not necessary for us to determine to dispose of this appeal
In that view of the matter the decision of the Tribunal must be upheld
Shri Rao however further submitted that there were certain other claims like cost of transportation and other permissible deductions such as duty of excise and sales tax which should have been deducted from the value subject to proof by the appellants
Shri Rao submitted that apart from this there were other permissible deductions as envisaged by this Court in Asstt
Collector of Central Excise  Oth ers etc
vs Madras Rubber Factory Ltd  It may be observed that apart from cost of transportation excise duty and sales tax other charges were not sought to be deducted by the appellants in the appeal and were not canvassed before the Tribunal too nor in the grounds of appeal there was any such claim
Shri Rao however submit ted that in view of the decision of this Court in Madras Rubber Factory s case supra the appellants should not be denied the benefit of these deductions if they are other wise entitled to
Though strictly speaking that is beyond the scope of the appeal in view of the conten 796 tions raised in the appeal before the Tribunal and in view of the grounds of appeal taken by the appellants before us but in the interest of justice we permit the appellants to have these benefits as finally settled by this Court in Madras Rubber Factory s case supra
We are informed that the said decision of Madras Rubber Factory is under review in this Court
Therefore we are of the opinion that subject to the order passed in that review matter such deductions as may ultimately be held to be deductible be permitted to the appellants upon proof
With these observations the appeal fails and is accordingly dismissed with no order as to costs
PSS Appeal dismissed


Summary:
The petitioners the Assam Rifles Multi purpose Co operative Society and its Vice Chairman a retired Military Officer filed a writ petition in this Court praying for directions to the respondents for implementing the scheme approved by the Government of India for settling retired Defence Personnel specially of the Assam Rifles in the North Eastern Region
The petitioner asserted that in pursu ance of this scheme which assured the allotment of land grant of title deeds in respect of the allotted land facil ities for movement by air freedom to develop the allotted area grant of advance by way of loans etc
and also provi sion of basic requirements of life for encouraging all round economic development of the area about 200 retired person nel with their families journeyed to the region and settled there
The respondents in their counter affidavits contended that funds had been set apart and basic facilities provided
This Court by its Order dated February 20 1987 di rected the Central Government to nominate a competent au thority for examining the problem and looking into the scheme and submitting a report to the Central Government to enable it to consider the same and take necessary steps for redressal of the petitioners  grievances
Accordingly the Director General of Assam Rifles submitted to the Government his report making a number of recommendations in support of the scheme to settle Assam Rifles Ex servicemen and to ensure that the various facilities and concessions original ly promised to them were provided
The Central Government considered the recommendations at an inter Ministerial meet ing and took certain decisions and placed them before the Court
After considering the report and decisions of the Government 854 thereon and submissions made by the parties this Court HELD The region constitutes part of Indian territory and is located on the Indian border with China and Burma
It is in the public interest and for the benefit of the public that settlement of Indian citizens should be encouraged in this area and the area should be suitably developed
856A B More than sufficient time has passed and it is desira ble to ascertain what action has been taken by the State Government pursuant to the requests made to it by the Cen tral Government to provide some of the facilities required by the settlers and it is considered necessary to make the following supplementary directions 857C D The Central Government and State Government should decide between them as to which of them will give loans to the settlers and to what extent
857D The Central Government should direct that the existing post office establishment should be enlarged to handle disbursement of pensions
857E The State Government should upgrade the existing middle school to the status of High School and make adequate provi sion for additional seats in the students  hostel to absorb the increasing number of seats resulting from such upgrada tion and the grant of domicile certificates in relation to settlers atleast in respect of members of petitioner socie ty should be considered
857E F Respondents No 1 and 2 will file before the next date of hearing affidavits indicating the action taken by them pursuant to the decisions taken at the inter Ministeri al meeting and pursuant to the directions made by this Court
857G