Case: Hafiz Din Mohammad Haji Abdulla Vs. State of Maharashtra

1. The Sales Tax Tribunal, Bombay, referred under section 23 of the C.P. and Berar Sales Tax Act, 1947, the following question to the High Court of Judicature at Bombay :"Whether the transactions in dispute amounted to sales in view of the agreements produced by the applicants at pages 195 to 205 of the Assistant Commissioners record ?"2. Following an earlier judgment in Civil Miscellaneous Case No. 305 of 1954Abdul Rashid Hafiz Din Mohammad v. The State of Bombaythe High Court answered the question in the affirmative, Messrs Haji Din Mohammad Haji Abdullawho are hereinafter referred to as the assesseeshave appealed to this Court with certificate to fitness.3. The assessees are bidi merchants at Kamptee, District Nagpur in the former State of Madhya Pradesh. They held at the material time a licence issued by the Government of the Central Provinces for the manufacture and sale of bidis in and outside the State of Madhya Pradesh. Between November 13, 1947, and November 1, 1948, the assessees despatched bidis to merchants at diverse places in India, each merchant executing an agreement in the form of a letter addressed to the assessees, a sample form whereof is set out here belowYou will have to meet my demand of bidis in my area.(2) You will have to give delivery of bidis at Manmad station.(3) I will sell your bidis at the rate fixed by you adding to it the expenses incurred.(4) Money towards goods will be remitted to you as sales are effected or sometimes remittance will be made in advance.(5) After the goods are delivered, I shall be responsible for the damages or risk at my place or in transit.(6) I shall take from you, in lieu of my labour, Rs.as commission per pitara.(7) You will have the right to increase or reduce the rate of bidis.(8) On the goods remaining in stock when the rate is increased or decreased, necessary adjustment of accounts will be made.(9) If I were to be acting in contravention of these conditions, you will have the right to cancel my agency. You will have right to make arrangements for the sale of your bidis as you think best."

Reasoning:
These clauses clearly indicate that the bidis even in the hands of the merchants to whom they were despatched remained the property of the assessees. By clauses (3) and (9) these bidis in the hands of the merchants are expressly referred to as "your bidis". There is no warrant for assuming that the expression "your" in these clauses was intended to signify merely the bidis manufactured by and not of the ownership of the assessees. Clause (4) emphasizes that the property in the bidis despatched to the merchants remained with the assessees. By that clause the merchant undertakes to remit "money towards goods" after safes are effected. Therefore under the agreement between the parties the goods are to be sold at a price fixed by the supplier, the prices are liable to be altered at the instance of the supplier, the person to whom the goods are supplied is to receive a fixed remuneration for his exertion, and is liable to remit the price only after the sale is effected. These are clear indications that the relation is of principals and agent and not of vendors and purchaser. The terms of clause (1) imposing an obligation upon the assessees to meet the demands of bidis of the merchants in the areas assigned to them further emphasizes that character of the relation between the parties. It is true that by clause (5), for damages or risk to the goods during transit or in the shop of the merchant, the latter is responsible, but that does not alter the true nature of the right in which he holds the goods. It is open to an agent to undertake a liability in respect of goods after they are delivered to him even though the property in goods does not pass to him. Clause (2) providing for giving delivery at the town where the merchant resides has no special significance. The diverse clauses of the agreement in our judgment, create a relationship of principals and agent and not of vendors and purchaser between the assessees and the merchants to whom the bidis were despatched.