Case: Bhopal Sugar Industries Ltd Vs. Sales Tax Officer, Bhopal

so as to save its reputation. Read as a whole, this stipulation does not amount to make the appellant liable to render regular accounts to the company inasmuch as the statements called for were required only for a very limited purpose, viz., to prevent the appellant from misusing his privileges and thereby jeopardising or harming the reputation of the company. In these circumstances, therefore, the argument based on this clause appears to be of no assistance to the counsel for the respondent. 24. Clause 8 of the agreement clearly shows that the appellant had been loaned properties belonging to the company like petrol pumps and their accessories, etc., and it was in respect of these properties which had been given to the dealer for working the petrol pumps that the statements of account were called for from the appellant. This appears to be the modus operandi adopted by the seller-company in respect of all its distributors. There is no stipulation in the agreement which requires or enjoins on the appellant to submit accounts of the Hispeedol or petrol which he may have sold to various customers, after having taken delivery of the same from the company. In these circumstances, therefore, this argument of the learned counsel for the respondent must be overruled.Another circumstance relied upon by the respondent was the fact that the appellant was under the terms of the agreement to sell the goods at a price fixed and not higher or lower than that. We have already indicated that when a company enters into a distribution agreement it always fixes a particular price in order to protect its goodwill and in order to control the market. Such fixation of the price by itself would not be a restriction which would take away the freedom of contract of sale. Such a stipulation is found in almost all the agreements entered into between the monopolist companies and their distributors. The respondent would not, therefore, be justified in treating this circumstance in order to show that the agreement was one of agency. 25. Similarly the argument that the appellant was to sell the goods in a territory fixed by the company does not show that the agreement was not of sale because this is also one of the common features of a distribution agreement. The question to be determined is not what was the territory fixed by the seller-company but whether there was any limitation to sell to any particular person within the territory for which the properties were sold to the appellant. On this point there is absolutely no restriction. 26.It was further contended that under clause 26 of the agreement the company agreed to pay a commission and certain allowances to the appellant which shows that the appellant was an agent. The relevant portion of clause 26 runs thus :"In consideration of the dealer undertaking faithfully, to carry out their part of the agreement as set forth 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 set forth in the schedule attached hereto, but the company reserve the right to alter such commission and allowances as and when they think fit without any previous notice to the dealer and without assigning any reason therefor."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, the payment of commission by itself is not conclusive to show that the agreement was one of agency. In Balthezar and Son v. E. M. Abowath [A.I.R. 1919 P.C. 166 at 167], Lord Dunedin observed as follows : "It comes to this that all the documents show on the face of them a contract between principles. The mere mention of commission in the contract as signed is not in any way, as pointed by the learned Judges of the Court of Appeal, inconsistent with the relation being between principal and principal." 27. This decision was followed by the Calcutta High Court in Ganesh Export and Import Company v. Mahadeolal Nathmal [[1955] 25 Comp. Cas. 357; A.I.R. 1956 Cal. 188] and we find ourselves in complete agreement with the view taken by the Calcutta High Court. For these reasons, therefore, the argument by the learned counsel for the respondent is not tenable in law. 28. Finally, reliance was placed on clause 18 of the agreement appearing at page 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. 29. The present agreement undoubtedly contains some elements of agency also, but the main question which has to be determined in this case is whether or not at the point of time when the appellant was consuming the Hispeedol or petrol for its own purposes it was acting as an owner of the goods or as agent of the seller-company. From the facts and circumstances discussed above, we have shown that the appellant, after taking delivery of the goods, was the owner of the goods and if it consumed the same for its own purposes it was not doing so as agent but as owner which it was fully entitled to do. In this view of the matter, the quantities of petrol consumed by the appellant for its own purposes would not constitute a sale so as to be exigible to sales tax. We have carefully perused the order of the Commissioner and find that the Commissioner has taken an erroneous view of the law and has drawn legally wrong inferences from the various stipulations contained in the agreement. The Commissioner has also not given effect to well-established legal principles in interpreting the agreement.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]Thus the essence of the matter is that in a contract of sale, title to the property passes on to the buyer on delivery of the goods for a price paid or promised. Once this happens the buyer becomes the owner of the property and the seller has no vestige of title left in the property. The concept of a sale has, however, undergone a revolutionary change, having regard to the complexities of the modern times and the expanding needs of the society, 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 be 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 principle 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 simpleIt 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 relationshipIt seems to us that the law on the subject has been stated by the court in a different context, and, therefore, this case does not appear to us to be of any assistance in determining the question at issue in the instant case. The court in the aforesaid case had inferred agency from the mere fact that under the agreement the sale was to operate in a limited territory. This by itself, in our opinion, is not sufficient to lead to the inference that the agreement was one of agency. It is always open to the buyer to purchase goods for a limited purpose and within the field of that limited purpose the buyer has absolute title to the property once it is delivered to him by the sellerIt is, therefore, clear that the moment the appellant received the supplied 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 consumption it was using its own property in which the company had no title at all and such a used therefore could not, by any stretch of imagination, be treated as a sale.Another very important circumstance which clearly shows that the contract was one of sale and not of agency is the fact that after having taken delivery of the petrol and Hispeedol the appellant sold the same to its various customers, not even mentioning that the property belonged to the Caltex Company but issued cash memos in its own name, which clearly indicates that after taking delivery of the property the appellant became the absolute owner thereof and represented itself to be the owner of the property and sold it not as the property of the company but as its own property. This fact is clearly proved by the cash memos and credit vouchers produced by the appellant at pages 195-197 of the paper book. The cash memo describes the Bhopal Sugar Industries Ltd. as the owner of the goods and so does the credit voucher. This, therefore, conclusively shows that the agreement could not have been an agreement of agency because the essential distinction between an agreement of sale and an 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 behalfUnder this clause the appellant was required to deliver reasonable quantities of products at the request of the company to consumers designated by the company at such points within the territory as may be specified. In consideration of complying with the request, the seller-company agreed to reimburse the appellant in full for the supplies and the appellant was also entitled to be paid transportation expenses and handling allowances as may have been incurred by it. This is another decisive factor which negatives the theory that the agreement could be one of agency. Indeed such a stipulation in the agreement is wholly inconsistent with the position of the appellant being an agent for in that case there was absolutely no scope for such a stipulation and the seller-company as a principal of the agent could have instructed it to supply the goods or petrol to designated customers and there was no question of the agent being reimbursed, because the property supplied belonged to the principal and was delivered to certain persons on the instructions of the principal. This clause, therefore, is yet another important factor which shows that the agreement was intended to be a contract of sale rather than a contract of agency.Furthermore, the agreement contains a clear and unequivocal declaration by the seller-company that the statue of the appellant would not be that of an agentThis 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 agentThe cumulative effect of the circumstances mentioned above leads to the inescapable conclusion that the Hispeedol had been sold to be appellant and not held by it merely as an agent of the Caltex Company. The petrol agreement also which has been placed before us contains similar stipulations and it was not disputed by the counsel for the respondent that if the Hispeedol agreement is held to be a contract of sale, then the same would have to be said of the petrol agreement also. Thus the principles which would make the contract of purchase of Hispeedol a contract of sale would apply mutatis mutandis to the petrol agreement alsoIn 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 companys reputation may not suffer and if any statement regarding the sales or other matter were required by the company, they were not required because the appellant was the agent of the company but it was because the company wanted to keep itself fully informed of the proper conduct of the business by the appellant in order to maintain its goodwill. It is manifest that if during the period of the agreement there were serious complaints against the appellant regarding the misuse of the privileges given to it under the agreement, the company could under the terms of the agreement terminate the agreement so as to save its reputation. Read as a whole, this stipulation does not amount to make the appellant liable to render regular accounts to the company inasmuch as the statements called for were required only for a very limited purpose, viz., to prevent the appellant from misusing his privileges and thereby jeopardising or harming the reputation of the company. In these circumstances, therefore, the argument based on this clause appears to be of no assistance to the counsel for the respondentClause 8 of the agreement clearly shows that the appellant had been loaned properties belonging to the company like petrol pumps and their accessories, etc., and it was in respect of these properties which had been given to the dealer for working the petrol pumps that the statements of account were called for from the appellant. This appears to be the modus operandi adopted by the seller-company in respect of all its distributors. There is no stipulation in the agreement which requires or enjoins on the appellant to submit accounts of the Hispeedol or petrol which he may have sold to various customers, after having taken delivery of the same from the company. In these circumstances, therefore, this argument of the learned counsel for the respondent must be overruled.Another circumstance relied upon by the respondent was the fact that the appellant was under the terms of the agreement to sell the goods at a price fixed and not higher or lower than that. We have already indicated that when a company enters into a distribution agreement it always fixes a particular price in order to protect its goodwill and in order to control the market. Such fixation of the price by itself would not be a restriction which would take away the freedom of contract of sale. Such a stipulation is found in almost all the agreements entered into between the monopolist companies and their distributors. The respondent would not, therefore, be justified in treating this circumstance in order to show that the agreement was one of agencyThe present agreement undoubtedly contains some elements of agency also, but the main question which has to be determined in this case is whether or not at the point of time when the appellant was consuming the Hispeedol or petrol for its own purposes it was acting as an owner of the goods or as agent of the seller-company. From the facts and circumstances discussed above, we have shown that the appellant, after taking delivery of the goods, was the owner of the goods and if it consumed the same for its own purposes it was not doing so as agent but as owner which it was fully entitled to do. In this view of the matter, the quantities of petrol consumed by the appellant for its own purposes would not constitute a sale so as to be exigible to sales tax. We have carefully perused the order of the Commissioner and find that the Commissioner has taken an erroneous view of the law and has drawn legally wrong inferences from the various stipulations contained in the agreement. The Commissioner has also not given effect to well-established legal principles in interpreting the agreement.