Case: Khedut Sahakari Ginning &amp; Pressing Societyltd Vs. State Of Gujarat

again is an authority given by the members to the Society.Bye-law 55 provides :"If it is found necessary and beneficial to sell goods which may be in stock by only other system which may be having connection with the forward market except the hedge system described in the above clause the managing committee can sell goods by the said system by making discussion with the officer of the union affecting the sale."26. This is also an authority given to the Society by its members to deal with their goods in a specified manner.27. It must be remembered that by and large the farmers are illiterate. They do not know the ways of business. The general belief is that taking advantage of the ignorance and illiteracy of the farmers, businessmen exploit them. To avoid such exploitation, the Act authorised the formation of Co-operative Societies of the farmers through which they can sell their goods. Those Societies merely function as agents for the farmers who are their members. By becoming members of those Societies and subscribing to their bye-laws, they had given large powers to their agents so that their produce may be sold in the best possible manner. None of the bye-laws of the Society goes to show that the Society had purchased the goods entrusted to it by its members.28. The High Court has referred to number of decisions that under the bye-laws of the Society, the Society must be held to have purchased the cotton and cotton seeds sold by it. We see no basis for that contention. The question whether a particular agreement is an agreement of sale or an agreement of agency has to be declared on the basis of the terms of that agreement. Decisions rendered on the basis of other agreements may be useful for finding out the principles to be applied in finding out the true character of an agreement but whose decisions cannot conclude the question before the court as no two agreements are likely to be similar. The nature of each agreement has to be decided on its own terms.29. The Tribunal, the High Court as well as the Council for the State have placed great deal of reliance on the decision of this court in Rohtas Industries Ltd.s case (supra). Therein the assessee was a limited liability company manufacturing cement. The assessee and some other cement manufacturing companies entered into an agreement with the Cement Marketing Company of India Ltd., whereby, the marketing company was appointed as the sole and exclusive sales manager for the sale of cement manufacturing companies and the manufacturing companies agreed not to sell directly or indirectly any cement to any person save and except through the marketing company. The manufacturing companies were entitled to be paid a certain sum per ton of cement supplied by them or at such other rate as might be decided upon by the directors of the marketing company. The marketing company was authorised to sell cement at such price or prices and on such terms as it might in its sole discretion think fit and it agreed to distribute to the manufacturing companies, in proportion to the number of tons of cement of every variety and kind suplied by the manufacturing companies, the whole of its net profit less 6 per cent, on its paid up capital. The question was whether the transactions between the assessee and the marketing company were sales or their relationship was that of agent and principal. The court held that the cement delivered, despatched or consigned by the assessee to the marketing company or to its orders or in accordance with its directions was sold by the assessee to the marketing company and the same was therefore liable to be taxed under the Bihar Sales Tax Act, 1544. This Court came to that conclusion on the basis of the various clauses in the agreement. One of the clauses in the agreement relied on by this Court for coming to the conclusion that the agreement in question was an agreement of sale was that the marketing company had to pay certain price for the cement supplied to it and that price was ordinarily required to be fixed having regard to the cost of production. Further the marketing company was entitled to fix price at which the cement was to be sold and such price could be even less than the cost of manufacture. It is true that some of the clauses in that agreement are similar to those we are considering in this case yet no clause in that agreement mentioned that the cement manufacturing companies were merely entrusting their cement to the marketing company nor was there any provision in that agreement for the marketing company to advance loans to the manufacturers on the security of the cement entrusted to it. Further the manufacturing companies were not required to pay any interest on the amount paid to them by the marketing company. Hence we are unable to agree with the High Court and the Tribunal that the ratio of the decision in Rohtas Industries Ltd.s case (supra) governs the fact of this case.30. The decision of this Court in Hafizdin Mohd. Haji Abdulla vs. State of Maharashtra does not support the contention of the State. Therein this Court on an examination of various clauses in the agreement held that the relationship between the assessee and its representatives was that of agent and principal and not of vendors and purchasers. Therefore the State can seek no assistance from that decision.31. Counsel for the State relied on the decision of the High Court of Madhya Pradesh in Ramchandra Rathore & Bros. vs. Commissioner of Sales Tax, Madhya Pradesh and the decision of the Bombay High Court in Versova Koli Sahakari Vahatuk Sangh Ltd. vs. State of Maharashtra in support of the State case. In our opinion the agreements considered in those decisions are wholly different in nature than the bye-laws with which we are concerned in this case.

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

Explanation:
1[ds]14. This bye-law clearly indicates that the members of the Society are merely entrusting their goods to the Society and not selling them to the Society. That is made further clear by the fact that the Society may advance loans upto 75 per cent of the estimated value of the goods entrusted to it on the security of those goods and those advances will carry interest. If those goods are sold to the Society then there can be no question of any entrustment for can the Society advance any money on the security of its own goods. If the transactions are sales in favour of the Society then the amounts to be paid by the Society would be purchase price. Such a payment cannot be made on the security of goods nor can that payment carry any interest.We fail to see how this bye-law can lend any assistance in support of the case pleaded by the State. That bye-law makes it clear that the goods in question come into the hands of the Society for sale or for their management through the Society. But the person who entrusts those goods because of this bye-law is deemed to have empowered the society to pledge the same.This bye-law refers to the goods of the members of the Society and not the goods of the Society. Because of that bye-law the members of the Society, who are bound by that bye-law must be deemed to have authorised the Society to pool their goods grade them, if necessary and sell them either after ginning or without ginning. That bye-law also prescribes mode in which the price fetched should be distributed amongst the persons whose goods are sold. The Society is the agent of all its members. Its principles are many. Because of the various bye-laws, the several principals must be deemed to have appointed a common agent-the Society-for disposing of their goods in the manner most advantageous to them. To achieve that object they must be held to have empowered the Society to pool their goods, grade them if necessary, and sell them either after ginning or without ginning. Such an authority in our opinion does not violate the law of agency.19. A person can be an agent for more than one principal and if all his principals jointly authorise him to pool their goods and sell them and pay the sale price to them in the manner prescribed by them, he does not cease to be an agent. The question whether and when an agent with the authority of his principals pools together the goods of its principals grades them and sells them, ceases to be an agent and becomes a purchaser was considered by the Mysore High Court in Sherule Fazle and Co. vs. Commercial Tax Officer, Additional Circle, S. Kanara, Manglore and Anr. There in the High Court held that he does not cease to be an agent. We agree with the ratio of that decision.It must be remembered that by and large the farmers are illiterate. They do not know the ways of business. The general belief is that taking advantage of the ignorance and illiteracy of the farmers, businessmen exploit them. To avoid such exploitation, the Act authorised the formation of Co-operative Societies of the farmers through which they can sell their goods. Those Societies merely function as agents for the farmers who are their members. By becoming members of those Societies and subscribing to their bye-laws, they had given large powers to their agents so that their produce may be sold in the best possible manner. None of the bye-laws of the Society goes to show that the Society had purchased the goods entrusted to it by its members.28. The High Court has referred to number of decisions that under the bye-laws of the Society, the Society must be held to have purchased the cotton and cotton seeds sold by it. We see no basis for that contention. The question whether a particular agreement is an agreement of sale or an agreement of agency has to be declared on the basis of the terms of that agreement. Decisions rendered on the basis of other agreements may be useful for finding out the principles to be applied in finding out the true character of an agreement but whose decisions cannot conclude the question before the court as no two agreements are likely to be similar. The nature of each agreement has to be decided on its own terms.29. The Tribunal, the High Court as well as the Council for the State have placed great deal of reliance on the decision of this court in Rohtas Industries Ltd.s case (supra). Therein the assessee was a limited liability company manufacturing cement. The assessee and some other cement manufacturing companies entered into an agreement with the Cement Marketing Company of India Ltd., whereby, the marketing company was appointed as the sole and exclusive sales manager for the sale of cement manufacturing companies and the manufacturing companies agreed not to sell directly or indirectly any cement to any person save and except through the marketing company. The manufacturing companies were entitled to be paid a certain sum per ton of cement supplied by them or at such other rate as might be decided upon by the directors of the marketing company. The marketing company was authorised to sell cement at such price or prices and on such terms as it might in its sole discretion think fit and it agreed to distribute to the manufacturing companies, in proportion to the number of tons of cement of every variety and kind suplied by the manufacturing companies, the whole of its net profit less 6 per cent, on its paid up capital. The question was whether the transactions between the assessee and the marketing company were sales or their relationship was that of agent and principal. The court held that the cement delivered, despatched or consigned by the assessee to the marketing company or to its orders or in accordance with its directions was sold by the assessee to the marketing company and the same was therefore liable to be taxed under the Bihar Sales Tax Act, 1544. This Court came to that conclusion on the basis of the various clauses in the agreement. One of the clauses in the agreement relied on by this Court for coming to the conclusion that the agreement in question was an agreement of sale was that the marketing company had to pay certain price for the cement supplied to it and that price was ordinarily required to be fixed having regard to the cost of production. Further the marketing company was entitled to fix price at which the cement was to be sold and such price could be even less than the cost of manufacture. It is true that some of the clauses in that agreement are similar to those we are considering in this case yet no clause in that agreement mentioned that the cement manufacturing companies were merely entrusting their cement to the marketing company nor was there any provision in that agreement for the marketing company to advance loans to the manufacturers on the security of the cement entrusted to it. Further the manufacturing companies were not required to pay any interest on the amount paid to them by the marketing company. Hence we are unable to agree with the High Court and the Tribunal that the ratio of the decision in Rohtas Industries Ltd.s case (supra) governs the fact of this case.30. The decision of this Court in Hafizdin Mohd. Haji Abdulla vs. State of Maharashtra does not support the contention of the State. Therein this Court on an examination of various clauses in the agreement held that the relationship between the assessee and its representatives was that of agent and principal and not of vendors and purchasers. Therefore the State can seek no assistance from thatour opinion the agreements considered in those decisions are wholly different in nature than the bye-laws with which we are concerned in this case.Form the above provisions, it is clear that the object of the Society is not to purchase or sell any cotton seeds on its own behalf. The membership of the Society is confined to farmers of the villages mentioned in7 (a) and tosocieties of the Taluks mentioned therein.37 deals with the powers of the managing committee. For our present purpose only cls. 7, 14, 16 and 18 of that2. These provisions clearly go to indicate that the Society was selling the produce of others and not its own goods. Its duty is to arrange to sell the agricultural produce of its members.