Kishenlal Roopchand and Company vs The Government of Madras

Ramakrishnan, J.—The petitioners, Messrs Kishenlal Roop-chand and Company, who are dealers in piece-goods at Madras, were

assessed to sales tax in respect of their turnover for 1957-58. The dispute relates to a portion of their turnover of Rs. 1,50,000. In the view of the

department, these transactions represented sales effected in this State by a non-resident dealer of Ahmedabad by name Lal-chand Misrilal & Co.,

in which the Madras dealers, the assessees, were concerned as agents within the meaning of Section 14-A of the Madras General Sales Tax Act

of 1939 and consequently they were liable to be assessed on this part of the turnover. This view was confirmed by the Sales Tax Appellate

Tribunal in the appeal, and the assessees have come before this Court in revision.

The first point to be determined is the nature of the transaction. The Special Assistant Commercial Tax Officer took extracts from the register of

inward consignments at Salt Cotaurs Railway goods shed in Madras City and passed on these extracts to the assessing officer. It was found that

the assessees had cleared 16 consignments of the non-resident dealers and goods from the railway goods shed at Salt Cotaurs. There was

evidence to show that the petitioners took these goods to their own premises in Madras City and subsequently they have delivered to the buyers.

Out of 11 buyers involved in these transactions, three belonged to Madras, one to Pondicherry and the balance of seven to Kerala. The

Ahmedabad dealers could have booked the consignments direct to these buyers, but no satisfactory explanation was given by the assessees as to

why the goods were booked instead, to Madras, and why the assessees took delivery of them and later on handed them over to the buyers. In the

course of the enquiry by the department, a letter written by the Ahmedabad dealers on 4th January, 1958, to the assessees was filed and it reads:

I have sent to you 13 rail receipts for 13 bales. Our representative has gone out of station on tour and he will be coming to Madras. If he comes

there, please give the railway receipts to him. If the goods are landed there before he arrives, please clear the bales and keep them. Please also

deliver them as directed by our representative or as written by me. If there is any further business matter please write.

During the enquiry, the original invoices issued by the Ahmedabad dealers to the 11 buyers were also produced. These invoices showed that the

goods were booked from Ahmedabad to Salt Cotaurs in Madras. It will be recalled that some of the buyers resided in Kerala and in Pondicherry

and there was no necessity, therefore, to book the goods to Madras instead of to the buyers'' destination. Certain letters written by Madras buyers

were produced in the course of the enquiry and they showed that the Madras buyers used to place orders direct with the Ahmedabad dealers and

they made payment direct to the Ahmedabad dealers. During the enquiry, besides supplying the above correspondence, the petitioners did very

little to clear up the nature of their part in these transactions, whose details were entirely in their knowledge. They took the extreme stand that they

had nothing to do with these transactions and that their name was misused in the railway records. They argued that they did not take delivery, but

as against this, reference was made by the Tribunal to an admission of the assessees themselves. In their grounds of appeal they admitted that they

were also partners in the Ahmedabad dealers'' firm and as such they helped the Ahmedabad firm in respect of clearing off the goods and effecting

deliveries to the various purchasers from the Ahmedabad firm.

The Sales Tax Appellate Tribunal came to the conclusion in the circumstances stated above, that in these transactions, where the Ahmedabad

dealers agreed to sell certain goods to the buyers in Kerala, in Pondicherry and in Madras, the petitioners were engaged by the non-resident sellers

to take delivery of the goods at Madras from the railway goods shed, store the goods in their godown, and then deliver the goods at Madras to the

buyers or their agents, after receiving assurance that the buyers had remitted the price to the Ahmedabad dealers. It was argued by the learned

counsel for the petitioners, that the petitioners merely acted as clearing agents on behalf of the non-resident dealers, and that they did not represent

them in their dealings with the buyers. It was also urged that their obligations were confined to the duties described in the letter already extracted,

dated 4th January, 1958, which indicated that they merely retained the goods after clearing them from the railway, pending further directions from

the Ahmedabad dealers regarding their mode of disposal, and that it could not be inferred from this circumstance that they acted as the agents of

the non-resident dealers in their sales. But even in the letter already referred to, after directing the assessees to take delivery of the goods from the

railway, the sellers asked them to keep the goods in their custody and deliver them pursuant to the subsequent directions to be issued by the

Ahmedabad sellers. The petitioners have not cared to disclose the nature of these subsequent directions, whether they delivered the goods to the

representative of the sellers when he came to Madras and left it to him to arrange for the delivery to the buyers, or whether the agents of the buyers

themselves met the petitioners and took delivery of the goods after satisfying the assessees that they had remitted the price to the Ahmedabad

dealers. In this connection one may recall the position of the petitioners as partners in the Ahmedabad firm, the petitioners stood in a position of

intimate confidence vis-a-vis the Ahmedabad dealers. It was, therefore, open to the Tribunal, in the above circumstances, to draw the inference

that the petitioners were engaged by the Ahmedabad firm to play on their behalf an important part in the sale, namely, effecting delivery of the

goods to the buyers after satisfying themselves that the buyers had paid the price to the Ahmedabad sellers. That is the finding on the facts of the

case which the Tribunal had reached, and we see no grounds to disturb that finding.

The further question is whether in such circumstances, Section 14-A of the Madras General Sales Tax Act, 1939, will be attracted. That section

provides that in the case of a person carrying on the business of buying or selling goods in the State of Madras, but residing outside the State, the

provisions of the Act shall apply. In respect of the business of the non-resident, his agent residing in the State shall be deemed to be the dealer and

such agent shall be assessed to sales tax at the rate leviable under the Act in respect of the business of such non-resident in which the agent is

concerned, irrespective of the question whether the amount of the turnover of such business is less than the minimum specified in Section 3, Sub-

section (3). Subsequently, the non-resident dealer on application can obtain a refund of the tax if he shows that his turnover in the State is less than

the minimum prescribed u/s 3, Sub-section (3) of the Act. The Act after its amendment in 1959 included in the definition of "" dealer "" in Section

2(g), a commission agent, or any other person who carries on a business of buying and selling the goods on behalf of the principal, but the Act of

1939 did not include a commission agent in the definition of the ""dealer"". But as laid down by a chain of decisions starting from Radhakrishna Rao

v. Province of Madras [1952] 3 S.T.C. 121, it is implicit from general principles that a commission agent can validly effect sales and consequently

will come within the definition of ""dealer"". Section 8 of the Act of 1939 gives an exemption from assessment to agents acting for principals subject

to their getting a licence and subject to certain other conditions. Section 8 by itself is not a charging section; it merely grants exemption from

assessment in certain cases. Section 14-A of the 1939 Act is in terms an amplification of the definition of ""dealer"" in the 1939 Act; by a fiction it

provides that the agent of a non-resident dealer shall be deemed to be a dealer for the purpose of assessment; Section 14-A(2) defines the rate at

which he shall be assessed ; it states that he will not be entitled to exemption on a total turnover of less than Rs. 10,000 ; but a refund of tax can be

obtained by the principal in certain contingencies.

Learned counsel for the petitioners urged that Section 14-A of the Act will apply only to buying or selling agents, and not to any and every

person who has only some casual connection with the business of the non-resident dealer. But Section 14-A does not prescribe that the agent,

comprehended in its scope, is one who shall be engaged in buying or selling on behalf of the non-resident dealer under his authority. Section 14-

A(1) states that the agent of the non-resident residing in the State shall be deemed to be the dealer. The word ""agent"" .used here has to be

construed in its general meaning under the Indian Contract Act. The Supreme Court, in Srinivas Gopikishen Badruka v. State of Andhra Pradesh

[1962] 13 S.T.C. 393 has observed that since the word ""agent"" is not defined in the Sales Tax Act, the word must be understood to take the

meaning accorded to it by Section 182 of the Indian Contract Act, which defines an agent as a person employed to do any act for another or to

represent another in dealings with third persons. The Supreme Court pointed out in the above decision, which interpreted Section 18 of the

Hyderabad General Sales Tax Act, 1950, which is in pari materia with Section 14-A of the Madras General Sales Tax Act, 1939, that what was

necessary to find out, was whether the assessee was employed by the non-resident dealer to do some act for or on his behalf or to represent him

in his dealings with others. In the view of the Supreme Court there was nothing in Section 18 of the Hyderabad Sales Tax Act (corresponding to

Section 14-A of the Madras Sales Tax Act), which required that for an agent to be regarded as a dealer he must have authority to buy (or sell) on

behalf of the principal. From this point of view, the petitioners in this case were definitely engaged by the Ahmedabad dealers to act on their behalf

in regard to an important aspect of their dealings by taking delivery of the goods from the railway at Madras and then delivering them to the buyers

after being satisfied that the buyers had remitted the price. They were thus clearly the agents of the non-resident dealers and they were concerned

in the business of the non-resident dealers in Madras thereby attracting the liability to tax u/s 14-A.

There is no reason to apprehend that by interpreting on the above way the fictional conception of a dealer introduced by Section 14-A, there is

a risk of bringing within its scope, persons who are only casually connected with the business like persons sorting the goods, packing them or

merely acting as coolies for transport. No doubt these persons do some act in connection with the business, but it will be the duty of the assessing

authorities to distinguish those persons who are concerned in the business in a representative capacity on behalf of the non-resident dealer, from

others who merely play some casual part in the business, but lacking the essential requirement of agency, namely, representative capacity. That will

be a question of fact to be decided in each case on its own circumstances. As already pointed out in the present case, the facts justify the finding of

the Tribunal that the petitioners were agents of the non-resident dealers within the scope of Section 14-A.

Another requirement of Section 14-A is that it must be proved that the non-resident dealer is carrying on the business of buying and selling in

this State. In the present case, out of the transactions of the non-resident dealers, only three are with buyers in Madras State, but the rest are with

buyers in Pondicherry and Kerala State. But in all these cases, the bargain seems to be that the goods should be taken delivery of by the buyers in

Madras City itself whether they are resident in Madras State or outside. The property in the goods passed in Madras City, whether the buyers

belonged to Pondicherry, Kerala or Madras. The course of the transactions seems to be that the buyers or their agents came to Madras and took

delivery of the goods in the Madras City from the petitioners. From this point of view all these transactions must be deemed to be sales effected in

Madras State by the non-resident dealer in Ahmedabad.

The Tribunal has assessed the tax on the petitioners also at a higher rate u/s 3(2) of the Madras General Sales Tax Act which refers to additional

tax leviable on the sale of certain specified goods, provided that in the case of the goods imported into the State of Madras either from outside the

territory of India or from any other State in India, the tax shall be levied on the first sale effected in the State of Madras by a dealer who is residing

in the Madras State, after the import of the said goods into the State of Madras. But it is well established that for the purpose of defining a dealer

residing in the Madras State within the meaning of the proviso, the fictional conception of a ""dealer"" introduced by Section 14-A of the Act, should

not be applied: vide Jain Jari Stores v. State of Madras1. In the present case, the petitioners have been construed as dealers only for the purpose

of Section 14-A. Apart from that section, there is nothing to show that they could be construed as dealers in regard to these transactions. The

learned Government Pleader appearing for the State does not seriously dispute this position so far as the petitioners are concerned. We, therefore,

allow the revision case so far as the additional levy of tax on the petitioners u/s 3(2) of the Act is concerned and dismiss the revision in other

respects. No order as to costs.