Case: Srinivas Gopikishen Badruka Vs. State of Andhra Pradesh

MUDHOLKAR, J.1. The only question arising in these appeals by special leave from the judgment of the High Court of Andhra Pradesh is whether the appellant firm can be regarded as dealer under section 18 of the Hyderabad General Sales Tax Act, 1950 (XIV of 1950) with respect to certain transactions of purchasing castor seed entered into by the Bombay Export Co. Ltd., (hereafter referred to as the company) in the former State of Hyderabad on the ground that the appellant was the agent of the company.2. It is common ground that the company having its registered office in Bombay had contracted to purchase 18, 400 candies of castor seed in accordance with the rules of the Bombay Oil-seeds Exchange Ltd., with respect to forward contracts. The castor seed was to be purchased at different places in the Hyderabad State and the purchaser company paid 50% of the price to the appellant firm and under a tripartite agreement entered into at Bombay between the appellant, the company and one Jitendra Prakash Goel, its guarantor, the balance of 50% was to be advanced by the appellant who was to take delivery of the castor seed in the presence of a representative of the company and store the castor seed with it at Hyderabad and other places where the purchases were effected. The goods were to remain with the appellant at the risk of the company. Further the goods were to be kept by way of security for the loan advanced by the appellant and before obtaining delivery of the goods from the appellant, the company was required to pay the balance of the price of the goods. There was also a term in the contract requiring the company to deposit additional margin money if there was a fall in the price of castor seed in the Bombay market. A further clause in the agreement gave a right to the appellant to sell castor seed either by entering into a vaida transaction in Bombay or by public auction or by a private treaty. By other terms the appellant was entitled not only to commission but also reimbursement in respect of godown charges, insurance charges, hamali, carting expenses, transport charges, salaries of watchmen etc., with interest.The Sales Tax Authorities in Hyderabad assessed the appellant to sales tax for the years 1953-54 and 1954-55 in two separate proceedings upon a turnover of Rs. 4, 07, 599 and Rs. 26, 92, 401 for these respective years in respect of the purchases of castor seed made by the company in the former State of Hyderabad. The ground on which the appellant was assessed was that it was an agent of a non-resident and thus under section 18 of the Act was deemed to be a dealer within the definition of that expression in the Hyderabad General Sales Tax Act. Section 18 of the Act runs thus :"In the case of any person carrying on the business of buying or selling goods in the Hyderabad State but resident outside it (hereinafter in this section referred to as a non-resident) the provisions of this Act shall apply subject to the following modifications and additions, namely :-(i) in respect of the business of the non-resident, his agent residing in the Hyderabad State shall be deemed to be the dealer;(ii) the agent of a non-resident shall be assessed to tax or taxes under this Act at the rate or rates leviable thereunder in respect of the business of such non-resident in which the agent is concerned, even if the amount of turnover of such business is less than the minimum specified in section 3, or section 4 as the case may be;(iii) without prejudice to his other rights, any agent of a non-resident who is assessed under this Act in respect of the business of such non-resident may retain out of any moneys payable to the non-resident by the agent, a sum equal to the amount of the tax or taxes assessed on or paid by the agent."It was contended before the Sales Tax Authorities as well as in the High Court and is contended before us that the appellant was merely a financier with respect to the purchase of castor seed by the company and cannot be regarded as its agent at all. Since it was not an agent of the company it could not be deemed to be a dealer under section 18 of the Hyderabad General Sales Tax Act, 1950.The word "agent" is not defined anywhere in the Act. Since sales tax is levied on commercial transactions the word agent must be understood to have that meaning which is accorded to it by the Indian Contract Act, 1872. Section 182 of the Contract Act defines "agent" thus :"An agent is a person employed to do any act for another or to represent another in dealings with third persons3. It is contended on behalf of the appellant that the definition in the Contract Act cannot be imported into the Sales Tax Act. But no reason is given in support of the contention and, therefore, we cannot accept it. What we have to see then is whether under the tripartite agreement upon which reliance is placed on behalf of the appellant it could be said that the appellant was employed by the company to do some act for or on its behalf or to represent it in its dealings with others. In the preamble of the agreement it is clearly stated that the company had agreed to appoint the appellant as its agent, to pay the balance of the purchase price and to take delivery of the castor seed purchased for the company and store on the companys behalf, on certain terms and conditions. Thus, apart from the express recital therein that the appellant was to be the agent of the company it clearly employed the appellant for taking delivery of the castor seed and storing it with itself. We may mention that apart from taking delivery of the castor seed the appellant was given authority to act on behalf of the company and raise moneys by hypothecating or pledging the goods in their custody and for paying the purchase price and taking delivery of the goods on their behalf. No doubt, the agreement does contain numerous terms which would show that the appellant was to advance money to the company and was thus to be the companys financier. But that was not the only relationship contemplated between the parties. In addition to being a financier the appellant also became an agent of the company.It is, however, contended on behalf of the appellant that unless a person is appointed an agent to buy on behalf of the principal he cannot be regarded as a dealer within the meaning of section 18 of the Hyderabad General Sales Tax Act. In support of the argument reliance was placed on the decision in Firm Raghubar Dayal v. State of U.P. (A.I.R. 1955 All. 653 .). This was a case under the U.P. Sales Tax Act and the decision turns on the definition of the word "dealer" as contained in section 2 of that Act. The explanation to section 2(c) of the Act provides as follows :"Explanation 1. - The agent of a person resident outside Uttar Pradesh who carries on the business of buying or selling goods in Uttar Pradesh on behalf of such person shall, in respect of such business, be deemed to be a dealer for the purposes of this Act."4. Since the explanation specifically provides that the agent must have the authority not only to sell but also to buy on behalf of the principal the High Court held that the existence of such authority is essential for bringing in an agent within the ambit of the word "dealer" as defined in the Act. The word "dealer" is defined thus in section 2(e) of the Hyderabad General Sales Tax Act, 1950 :"Dealer means any person, local authority, company, firm, Hindu undivided family or any association or associations of persons engaged in the business of buying, selling or supplying goods in the Hyderabad State whether for a commission, remuneration or otherwise and includes a State Government which carries on such business and any society, club or association which buys or sells or supplies goods to its members."5. It does not contain any deeming provision of the kind that is in section 2 of the U.P. Sales Tax Act. The only deeming provision is that contained in section 18. There is nothing in section 18 which requires that for an agent to be regarded as a dealer he must have authority to buy on behalf of the principal.Reliance was then placed upon the decision of this Court in Mahadayal Premchandra v. Commercial Tax Officer, Calcutta ([1959] S.C.R. 551, 562; 9 S.T.C. 428.). That was a case under the Bengal Finance (Sales Tax) Act, 1941 (Ben. VI of 1941). There, the word "dealer" was defined thus :"Dealer means any person who carries on the business of selling goods in the State of West Bengal and includes the Government ............Explanation 2. - A factor, a broker, a commission agent, a del credere agent, an auctioneer or any other mercantile agent, by whatever name called, and whether of the same description as hereinbefore mentioned or not, who carries on the business of selling goods and who has, in the customary course of business, authority to sell goods belonging to principals is a dealer;Explanation 3. - The manager or an agent in West Bengal of a dealer who resides outside West Bengal and carries on the business of selling goods in West Bengal shall, in respect of such business, be deemed to be a dealer; ........"6. In view of the fact that one of the clauses of the agreement between the agent and the non-resident principal was that the agent shall, under no circumstances whatsoever, make or purport to make or hold himself out as empowered to make, on behalf of the principal any contract or contracts for the purchase or supply of any goods manufactured by the principal, this Court held that the agent in question was not a dealer against whom assessment of sales tax could be made in respect of the principals transactions. The case is thus distinguishable. There is thus no doubt whatsoever that the appellant firm was not merely a financier of the company but also its agent during the years in question. It, therefore, falls squarely within the ambit of section 18 of the Hyderabad General Sales Tax Act and the Sales Tax Authorities were justified in making the assessments against it.

Decision reasoning: 0[ds]3. It is contended on behalf of the appellant that the definition in the Contract Act cannot be imported into the Sales Tax Act.But no reason is given in support of the contention and, therefore, we cannot accept it. What we have to see then is whether under the tripartite agreement upon which reliance is placed on behalf of the appellant it could be said that the appellant was employed by the company to do some act for or on its behalf or to represent it in its dealings with others. In the preamble of the agreement it is clearly stated that the company had agreed to appoint the appellant as its agent, to pay the balance of the purchase price and to take delivery of the castor seed purchased for the company and store on the companys behalf, on certain terms and conditions. Thus, apart from the express recital therein that the appellant was to be the agent of the company it clearly employed the appellant for taking delivery of the castor seed and storing it with itself. We may mention that apart from taking delivery of the castor seed the appellant was given authority to act on behalf of the company and raise moneys by hypothecating or pledging the goods in their custody and for paying the purchase price and taking delivery of the goods on their behalf. No doubt, the agreement does contain numerous terms which would show that the appellant was to advance money to the company and was thus to be the companys financier. But that was not the only relationship contemplated between the parties. In addition to being a financier the appellant also became an agent of the company.It is, however, contended on behalf of the appellant that unless a person is appointed an agent to buy on behalf of the principal he cannot be regarded as a dealer within the meaning of section 18 of the Hyderabad General Sales Tax Act. In support of the argument reliance was placed on the decision in Firm Raghubar Dayal v. State of U.P. (A.I.R. 1955 All. 653  .). This was a case under the U.P. Sales Tax Act and the decision turns on the definition of the word "dealer" as contained in section 2 of that Act. The explanation to section 2(c) of the Act provides as follows :"Explanation 1.The agent of a person resident outside Uttar Pradesh who carries on the business of buying or selling goods in Uttar Pradesh on behalf of such person shall, in respect of such business, be deemed to be a dealer for the purposes of this Act."4. Since the explanation specifically provides that the agent must have the authority not only to sell but also to buy on behalf of the principal the High Court held that the existence of such authority is essential for bringing in an agent within the ambit of the word "dealer" as defined in the Act. The word "dealer" is defined thus in section 2(e) of the Hyderabad General Sales Tax Act, 1950 :"Dealer means any person, local authority, company, firm, Hindu undivided family or any association or associations of persons engaged in the business of buying, selling or supplying goods in the Hyderabad State whether for a commission, remuneration or otherwise and includes a State Government which carries on such business and any society, club or association which buys or sells or supplies goods to its members."5. It does not contain any deeming provision of the kind that is in section 2 of the U.P. Sales Tax Act. The only deeming provision is that contained in section 18. There is nothing in section 18 which requires that for an agent to be regarded as a dealer he must have authority to buy on behalf of the principal.Reliance was then placed upon the decision of this Court in Mahadayal Premchandra v. Commercial Tax Officer, Calcutta ([1959] S.C.R. 551, 562; 9 S.T.C. 428.). That was a case under the Bengal Finance (Sales Tax) Act, 1941 (Ben. VI of 1941). There, the word "dealer" was defined thus :"Dealer means any person who carries on the business of selling goods in the State of West Bengal and includes the Government ............Explanation 2.A factor, a broker, a commission agent, a del credere agent, an auctioneer or any other mercantile agent, by whatever name called, and whether of the same description as hereinbefore mentioned or not, who carries on the business of selling goods and who has, in the customary course of business, authority to sell goods belonging to principals is a dealer;Explanation 3.The manager or an agent in West Bengal of a dealer who resides outside West Bengal and carries on the business of selling goods in West Bengal shall, in respect of such business, be deemed to be a dealer; ........"6. In view of the fact that one of the clauses of the agreement between the agent and theprincipal was that the agent shall, under no circumstances whatsoever, make or purport to make or hold himself out as empowered to make, on behalf of the principal any contract or contracts for the purchase or supply of any goods manufactured by the principal, this Court held that the agent in question was not a dealer against whom assessment of sales tax could be made in respect of the principals transactions. The case is thus distinguishable. There is thus no doubt whatsoever that the appellant firm was not merely a financier of the company but also its agent during the years in question. It, therefore, falls squarely within the ambit of section 18 of the Hyderabad General Sales Tax Act and the Sales Tax Authorities were justified in making the assessments against it.