Case: Mahadayal Premchandra Vs. Commercial Tax Officer Calcutta &amp; Anr

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 ........................... (i)Turnover :-Used in relation to any period means the aggregate of the sale-prices or parts of sale-prices receivable, or if a dealer so elect, actually received by the dealer during such period after deducting the amounts, if any, refunded by the dealer in respect of any goods returned by the purchaser within such period. 21. It may be noted that under S. 4 of the Act every dealer whose gross turnover during the year immediately preceding the commencement of the Act exceeded the taxable quantum was liable to pay tax under the Act on all sales effected after the date so notified; and under S. 5 the tax payable by a dealer under the Act was levied at the rate therein specified on his taxable turnover. Unless, therefore the sales were effected by the dealer and the sale proceeds received by him such sales could not be included in his taxable turnover and he would not be liable to pay sales-tax thereon. 22. The position as it obtains in the present case is that even according to the first respondents own showing in the assessment order the sales in question were made by the Kanpur Woollen Mills, Kanpur, in West Bengal and they were primarily the dealers in regard to such sales. The appellants were however sought to be made liable to sales tax in respect of these sales by virtue of the expanded definition of the term dealer given in Explanation 3 to S. 2 (c) of the Act. The question, therefore, arises whether the appellants fall within the definition of dealer therein mentioned. 23. Explanation 2 to S. 2 (c) does not apply for the simple reason that even though the appellants were the commission agents of the Mills they had not in the customary course of business authority to sell-goods belonging to the principals. As a matter of fact Cl. 14 of the Agreement dated 2nd June 1952, in terms provided that the selling agents shall under no circumstances whatsoever make or purport to make or hold themselves out as empowered to make, on behalf of the Mills any contract or contracts for the purchase or supply of any goods manufactured by the Mills. Explanation 3 to S. 2 (c) was, therefore relied upon; but that so would not apply to the appellants. The appellants were no doubt agents of the Mills which resided outside West Bengal but it could not be said of them that they carried on the business of selling goods in West Bengal. The Mills had neither any office in West Bengal nor had they established any business through the appellants or otherwise of selling the goods in question in West Bengal. The only thing which was done in this connection was that the appellants canvassed orders as commission agents of the Mills in West Bengal and forwarded these orders to the Mills, which accepted them and executed the same. The privity of contract was established between the customers on the one hand and the Mills on the other; but, that also could only be on the acceptance of these orders by the Mills in Kanpur. Even through a number of orders placed in this manner by the appellants with the Mills were accepted by the Mills in Kanpur, it could not be said that the Mills were carrying on business of selling goods in West Bengal. The business was, if at all one of selling goods in Kanpur and despatching them to West Bengal for the purpose of consumption therein. These transaction were, therefore, not covered by the Explanation 3 to S. 2 (c) of the Act and the appellants could not in respect of such business be deemed to be a dealer within the meaning of that explanation. The position which was adopted by the first respondent, though under the behest of the Assistant Commissioner (C. S.) was therefore untenable. 24. A more formidable difficulty, however, faces the first respondent and it is that the sale price of the goods thus delivered by the Mills to the respective customers in West Bengal could not be included in the gross turnover of the appellants. The goods in question were directly supplied by the Mills to the customers, whether they were supplied in pursuance of the orders placed by the appellants with the Mills or were supplied in pursuance of orders directly placed by the customers with them. The invoices were all made out in the names of the customers and the relevant documents were negotiated by the Mills with the customers through the Banks. The customers released those documents from the Banks on payment of the relevant drafts and the sale price of the goods was thus received by the Mills through those Banks. At no time whatever was there any handling of the goods or the receipt of the sale price thereof by the appellants regard to the goods in question and under those circumstances the sale price thereof could not be included in the gross turnover of the appellants. If that was the true position, the appellants were not liable to sales-tax in respect of the disputed transactions, even though, per chance, they could be included within the expanded definition of Dealer in the Explanation 3 to S. 2 (c) of the Act - a contentions which we have already negatived. 25. It, therefore, follows that in regard to the disputed transactions which were of the total value of Rs. 6,21,369-10-3, the appellants were not at all liable to pay sales-tax thereupon and the first respondent was clearly in error in assessing the same to sales-tax.

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

Explanation:
1[ds]19. We are really surprised at the manner in which the first respondent dealt with the matter of this assessment. It is clear that he did not exercise his own judgment in the matter and faithfully followed the instructions conveyed to him by the Assistant Commissioner (C. S.) without giving the appellants an opportunity to meet the points urged against them. The whole procedure was contrary to the principles of natural justice. The procedure adopted was, to say the least, unfair and was calculated to undermine the confidence of the public in the impartial and fair administration of the sales-tax Department concerned. We would have, simply on this ground, set aside the assessment order made by the first respondent and remanded the matter back to him for his due consideration in accordance with law; but as the matter is old and a remand would lead to unnecessary harassment of the appellants, we have preferred to deal with the appeal on merits25. It, therefore, follows that in regard to the disputed transactions which were of the total value of Rs. 6,21,369-10-3, the appellants were not at all liable to pay sales-tax thereupon and the first respondent was clearly in error in assessing the same to sales-tax24. A more formidable difficulty, however, faces the first respondent and it is that the sale price of the goods thus delivered by the Mills to the respective customers in West Bengal could not be included in the gross turnover of the appellants. The goods in question were directly supplied by the Mills to the customers, whether they were supplied in pursuance of the orders placed by the appellants with the Mills or were supplied in pursuance of orders directly placed by the customers with them. The invoices were all made out in the names of the customers and the relevant documents were negotiated by the Mills with the customers through the Banks. The customers released those documents from the Banks on payment of the relevant drafts and the sale price of the goods was thus received by the Mills through those Banks. At no time whatever was there any handling of the goods or the receipt of the sale price thereof by the appellants regard to the goods in question and under those circumstances the sale price thereof could not be included in the gross turnover of the appellants. If that was the true position, the appellants were not liable to sales-tax in respect of the disputed transactions, even though, per chance, they could be included within the expanded definition of Dealer in the Explanation 3 to S. 2 (c) of the Act - a contentions which we have already negatived23. Explanation 2 to S. 2 (c) does not apply for the simple reason that even though the appellants were the commission agents of the Mills they had not in the customary course of business authority to sell-goods belonging to the principals. As a matter of fact Cl. 14 of the Agreement dated 2nd June 1952, in terms provided that the selling agents shall under no circumstances whatsoever make or purport to make or hold themselves out as empowered to make, on behalf of the Mills any contract or contracts for the purchase or supply of any goods manufactured by the Mills. Explanation 3 to S. 2 (c) was, therefore relied upon; but that so would not apply to the appellants. The appellants were no doubt agents of the Mills which resided outside West Bengal but it could not be said of them that they carried on the business of selling goods in West Bengal. The Mills had neither any office in West Bengal nor had they established any business through the appellants or otherwise of selling the goods in question in West Bengal. The only thing which was done in this connection was that the appellants canvassed orders as commission agents of the Mills in West Bengal and forwarded these orders to the Mills, which accepted them and executed the same. The privity of contract was established between the customers on the one hand and the Mills on the other; but, that also could only be on the acceptance of these orders by the Mills in Kanpur. Even through a number of orders placed in this manner by the appellants with the Mills were accepted by the Mills in Kanpur, it could not be said that the Mills were carrying on business of selling goods in West Bengal. The business was, if at all one of selling goods in Kanpur and despatching them to West Bengal for the purpose of consumption therein. These transaction were, therefore, not covered by the Explanation 3 to S. 2 (c) of the Act and the appellants could not in respect of such business be deemed to be a dealer within the meaning of that explanation. The position which was adopted by the first respondent, though under the behest of the Assistant Commissioner (C. S.) was therefore untenable22. The position as it obtains in the present case is that even according to the first respondents own showing in the assessment order the sales in question were made by the Kanpur Woollen Mills, Kanpur, in West Bengal and they were primarily the dealers in regard to such sales. The appellants were however sought to be made liable to sales tax in respect of these sales by virtue of the expanded definition of the term dealer given in Explanation 3 to S. 2 (c) of the Act18. From the detailed narration of the facts regarding this particular assessment it is quite clear that the first respondent did not exercise his own judgment in the matter of the assessment in question. Even though he was convinced to the contrary, he asked for the instructions of the Assistant Commissioner (C. S.) and followed the same and assessed the appellants to sales-tax in respect of the disputed transactions.The order which he ultimately passed on 15th January 1955, further showed that he was merely voicing the opinion of the Assistant Commissioner (C. S.) without any conviction of his own and the only thing he had to say in regard to the various grounds mentioned in the letters dated 21st November 1953, and 19th June 1954, was that they appeared to him to be not at all satisfactory. This was hardly a satisfactory way of dealing with the matter. If the Assistant Commissioner (C. S.) had been dealing with the same he could have by all means given in the assessment order which he made his reasons for doing so and these reasons would have been open to scrutiny in further proceedings taken by the appellants either by way of appeal or otherwise.The Assistant Commissioner (C. S.) however, had delegated this work of assessment to the first respondent and then it was the duty of the first respondent to make the assessment order giving his own reasons for doing so.The file of the assessee, however, shows that even though the 1st respondent was satisfied on the materials placed by the appellants and their representative before him that the appellants were not liable to pay sales-tax in regard to these transactions, he referred the matter first for instructions and then for obtaining the valued opinion of his superior, the Assistant Commissioner (C. S.) and the latter expressed his opinion that the appellants were liable in respect of these transactions. All this was done behind the back of the appellants and the appellants had no opportunity of meeting the point of view which had been adopted by the Assistant Commissioner (C. S.) and the first respondent quietly followed these instructions and advice of the Assistant Commissioner (C. S.)