Parikh Metal Corporation Vs The Commercial Tax Officer, The Tamil Nadu Sales Tax Appellate Tribunal (Second Additional Bench) and The Tamil Nadu Taxation Special Tribunal

N.V. Balasubramanian, J.@mdashAll the writ petitions raise the same point and are disposed of by this common order. The writ petitions have been filed challenging the orders of the Tamil Nadu Taxation Special Tribunal (hereinafter referred to as ''the Special Tribunal'') whereby the assessment order for the year 1984-85 under the Tamil Nadu General Sales Tax Act,1959 (hereinafter referred to as ''the TNGST Act'') and the consequential order of levying additional tax and surcharge were restored by setting aside the order of the Sales-tax Appellate Tribunal. Hence, three writ petitions. The point that arises in all the writ petitions is with regard to the determination of the exact legal relationship between the petitioner and M/s. Universal Radiators Ltd., Coimbatore (hereinafter referred to as ''the Universal Radiators''). The case of the petitioner is that the petitioner, a partnership firm, is a dealer carrying on business in non-ferrous metals. According to the petitioner, it was appointed as a buying agent by the Universal Radiators and therefore the transactions effected between the petitioner and the Universal Radiators were not on principal to principal basis and did not attract the levy of sales-tax as there were no sales by the petitioner in favour of the Universal Radiators, but the goods were transferred in the capacity of agent to principal.

2. The assessing officer, viz., the Commercial Tax Officer, did not agree with the submissions made on behalf of the petitioner and held that the relationship between the petitioner and the Universal Radiators was one of principal to principal and therefore there were sales by the petitioner in favour of the Universal Radiators as the goods dealt with by the petitioner were multi-point goods. The order of assessment was confirmed by the Appellate Assistant Commissioner. The Tamil Nadu Sales-tax Appellate Tribunal, however, took a different view and held that under the agreement dated 20.6.1984 the petitioner acted only as an agent and there was no principal to principal relationship between the petitioner and the Universal Radiators. The Special Tribunal, on the matter being taken on revision by the Revenue, however, took a different view in construing the agreement dated 20.6.1984 and held that the relationship between the petitioner and the Universal Radiators was one of principal to principal and there were sales by the petitioner in favour of the Universal Radiators and therefore the sales by the petitioner would attract levy of sales-tax under the provisions of the TNGST Act. It is that order of the Special Tribunal which is the subject matter of the writ petitions.

3. It is clear from the facts stated that the assessing officer, the Appellate Assistant Commissioner and the Special Tribunal while considering the facts and circumstances of the case and held that the relationship between the petitioner and the Universal Radiators was on principal to principal basis, but however, the Tamil Nadu Sales Tax Appellate Tribunal took a different view holding that the relationship was principal to agent. Therefore it cannot be stated that only one view is possible on the facts and circumstances of the case and in the light of the construction of the agreement dated 20.6.1984 that the petitioner has acted only as an agent of the Universal Radiators, claiming to be the undisclosed principal. The jurisdiction of this Court to interfere with the orders of the Special Tribunal under Article 226 of the Constitution of India is very much limited and where more than one view is possible on the facts of the case, this Court may not interfere with the orders of the Special Tribunal, unless it is established that the order suffers from any error of law or suffers from a mistake apparent on the face of record or the finding arrived at by the Special Tribunal is not based on evidence or the finding of the Special Tribunal is unreasonable or perverse.

4. We have, in an unreported judgment dated 29.10.2002 in W.P. No. 14934 of 2000 (M/s. Peria Karamalai Tea & Produce Co. Ltd. vs. Tamil Nadu Taxation Special Tribunal and another) relied upon the decision of a Constitution Bench of the Supreme Court in Syed Yakoob Vs. K.S. Radhakrishnan and Others, and held that while exercising jurisdiction of the High Court in issuing a writ of Certiorari under Article 226 of the Constitution of India this Court is not entitled to act as an appellate Court and the finding of fact reached by the Tribunal as a result of appreciation of evidence cannot be reopened or questioned.

5. Learned counsel for the petitioner submitted that there is an error in law which is apparent on the face of record and it can be corrected in the writ proceedings. Learned counsel further submitted that the Special Tribunal has committed an error in law by holding that there existed principal to principal relationship. He submitted that the facts of the case prove that the inference drawn by the Special Tribunal is incorrect and the assumption of the Special Tribunal does not alter the petitioner''s status of an agent as the petitioner has acted on behalf of the undisclosed principal. His submission was that the Special Tribunal has committed a serious error in posing a wrong question as if the claim of the petitioner was that the petitioner is not a dealer under the provisions of the TNGST Act. His submission was that the petitioner was acting as an agent for the undisclosed principal and the petitioner has established the agency. Learned counsel submitted that the reasonings of the Special Tribunal that the petitioner has contributed its own money and the petitioner delivered the goods and the petitioner had not shown to the seller that he was acting as an agent are not relevant. He submitted that the conduct of the petitioner with the Universal Radiators under the agreement clearly shows that the petitioner had acted only as an agent. Learned counsel also submitted that the cases relied upon by the Special Tribunal are all cases dealing with a selling agents and those cases have no application to the facts of the case as the petitioner was acting as a procuring agent. Learned counsel relied upon the following decisions:

1. K.P. Sitaram and Co. Vs. The State of Madras,

2. Commissioner of Sales Tax Vs. Basantilal Banarasidas,

3 Patram Sitaram of Morena Vs. Commissioner of Sales Tax,

4. Bagal Kot Cement Co. Vs. State of Mysore,

5. Peninsular Traders, Perumbavoor and Another Vs. Dy. Commissioner, Sales Tax (Law), Kerala,

6. The State of Tamil Nadu Vs. A. Rafeeq Ahmed and Co.,

He also referred to the relevant clauses of the agreement and submitted that it is open to the petitioner to act for an undisclosed principal and the rights and liabilities of the petitioner and the Universal Radiators are regulated by the agreement. He therefore submitted that the order of the Special Tribunal holding that the petitioner is a dealer and is liable to be assessed under the TNGST Act is not sustainable in law.

6. Learned Special Government Pleader, on the other hand, submitted that the view of the Special Tribunal is sustainable in law as the Special Tribunal has considered the agreement and found out the intention, surrounding circumstances and the course of dealings between the parties, and on that basis, it arrived at the finding. He also submitted that there is no evidence produced to show that the goods were purchased by the dealer at the instance or on behalf of the principal. He therefore submitted that there is absolutely no evidence to show that the petitioner has purchased for and on behalf of the principal. His submission was that the goods were purchased and transferred by transfer of title of goods.

7. We have carefully considered the submissions of the learned counsel for the petitioner and the learned Special Government Pleader. The question whether there was a relationship of principal and agent between the petitioner and the Universal Radiators or there was a relationship of principal to principal has to be considered on the basis of the agreement entered into between the parties. The agreement was entered into on 20.6.1984 and it is not disputed by the respondents that the agreement is a genuine agreement. It is also relevant to mention here and it is also not disputed by the learned counsel for the petitioner that the nomenclature given in the agreement describing the petitioner as a procurement agent is not conclusive. We have gone through the entire agreement. The relevant clauses in the agreement are clauses 1,3,4,5,6,7,9,10 and 12 and the clauses read as under:-

"1. The party of the First Part hereby appoints the Party of the Second Part as Procurement Agent on Non-Exclusive Basis and the Party of the Second Part accepts such appointment.

3. It is open to the party of the Second Part to undertake Procurement Agency for any other party for the ''said goods'' on same or other terms without reference to the party of the First Part.

4. The party of the First Part will periodically intimate their requirements for the said goods and given authorisation for purchase of the said goods at its cost at the most advantageous price.

5. The part of the Second Part will buy the said goods from the market keeping the party of the First Part duly informed about the market rates and conditions.

6. It is open to the party of the Second Part to disclose or not to disclose the identity of the Party of the First Part in its dealings with the third parties including suppliers for the said goods.

7. The goods purchased on the account of the party of the First Part by the party of the Second Part will remain the property of the party of the First Part and the Party of the Second Part will take all responsibility and safeguards, for the handling, collection, storage, transport and delivery of the said goods to the party of the First Part.

9. The Party of the First Part undertakes to reimburse the cost of procurement of the said goods and reimburse the expenses at actuals for the handling, storage, transport and delivery by the party of the Second Part.

10. The party of the Second Part will render statement of Account for each transaction of purchase on the account of the party of the First Part indicating cost of purchase, tax paid for such purchase. The books of accounts of the Party of the First Part maintained for this purpose is open to inspection by the party of the First Part.

12. The Party of the Second Part will be entitled to a remuneration calculated at 5"% of the cost of purchase of the said goods on the account of the party of the First Part which can be claimed along with the Statement of Account."

8. Though in clause-1 the petitioner has been described as procurement agent, under clause-3 it is open to the petitioner to undertake procurement agency for any other party for the said goods without reference to the Universal Radiators. In other words, the petitioner is not an exclusive agent. A reading of clause-3 clearly shows that the goods are purchased by the petitioner by employing its own funds and it is only on the delivery of goods to the Universal Radiators, the Universal Radiators has undertaken to reimburse the cost of procurement including other expenses. Under clause-4, the Universal Radiators has to intimate the requirements to the petitioner for the goods mentioned in the agreement and also authorise the petitioner to purchase the said goods at its costs at the most advantageous price. The clause gives a complete freedom to the petitioner to purchase goods at the price as it thinks fit. In other words, the petitioner is given complete freedom to select the goods, to select the seller, to determine the price, to fix the terms of sales and to purchase goods at the price as it thinks fit to be the market price. Though the petitioner has to inform the Universal Radiators about the market rate and the condition of the goods, the goods purchased, till they were handed over to the Universal Radiators, would remain in the responsibility and custody of the petitioner as under the agreement, the petitioner is responsible for handling, collection, storage, transport and delivery to the Universal Radiators. In other words, the goods would be in the custody of the petitioner and if any loss occurs or if the goods are stolen, it would be the sole responsibility of the petitioner. In other words, only on delivery of goods to the Universal Radiators, the property in goods would be transferred to the Universal Radiators. Moreover, the petitioner has to employ its own funds to purchase the goods, and only later it is entitled to get reimbursement. Though the earlier part of clause-7 of the agreement says that the goods purchased would be on account of the Universal Radiators, the latter part of that clause overrides the earlier part of the clause wherein it is stated that it will be the responsibility of the petitioner to handle, collect, store, transport and deliver the goods to the Universal Radiators which shows that till the goods are delivered, the petitioner will have the complete control over the goods and it is open to the petitioner to divert the goods to any other party. In other words, the title of the goods passes to the Universal Radiators only on delivery of goods and till that event takes place, the goods would be under the control of the petitioner.

9. Another important aspect is that if the goods purchased are not up to the quality expected by the Universal Radiators, it is not incumbent on the Universal Radiators to accept the goods. In other words, the power of rejection of goods either on the ground of excessive price paid for the purchase of goods by the petitioner or where the goods are not in conformity with the quality expected by the Universal Radiators clearly shows that the petitioner has not acted as an agent for the Universal Radiators. We are of the view that if the goods really belong to the Universal Radiators and the goods have been purchased by the petitioner on account of the Universal Radiators, the Universal Radiators would have no right to reject the goods either on account of excessive price or on account of the goods being not in conformity with the quality expected by the Universal Radiators. Moreover, clauses 9 and 12 of the agreement also provide that the Universal Radiators has to pay all expenses incurred and also the remuneration at the rate of 5"% of the cost of purchase of the goods.

10. Therefore, a reading of these clauses clearly shows that the expenditure on the purchase of goods and the expenditure on the transport, storage and handling of the goods are to be met initially by the petitioner and later on, the petitioner is entitled to get reimbursement from the Universal Radiators. We are therefore of the view that a close reading of the various clauses of the agreement shows that the relationship between the petitioner and the Universal Radiators is on principal to principal basis and the petitioner has not acted as an agent. The primary test of an agency is the agent must enter into agreement with third parties for and on behalf of the principal. We are of the opinion that there is no relationship of principal and agent as the petitioner has purchased the goods by investing its own money and later on transferred the same to the Universal Radiators as the petitioner''s own goods. The endorsement on the invoice were made only after the goods have been purchased. The mere fact that in some transactions there was refund of over payment or there was some reinvestment by certain short fall, as noticed by the Sales Tax Appellate Tribunal is not sufficient to hold that there exists principal and agent relationship between the petitioner and the Universal Radiators.

11. As far as the decision of this Court relied upon by the learned counsel for the petitioner in the case of K.P. Sitaram and Co. Vs. The State of Madras, is concerned, this Court was considering the case of a principal and agent and the materials produced clearly showed that the dealer had acted for the principal in placing orders. Though it is open to an agent to place orders anticipating ratification and confirmation of the orders by the ultimate buyer, a reading of the agreement does not show that the petitioner has acted as an agent for the Universal Radiators. In Commissioner of Sales Tax Vs. Basantilal Banarasidas, , the Madhya Pradesh High Court has held that the fact that the agent has invested its own money and charged interest and commission would not retract him from the relationship of principal and agent. The Court has also held that he would be an agent having interest in the transactions. However, it has no application as the Madhya Pradesh High Court was dealing with the case of a known principal and the agency was also established.

12. In Patram Sitaram of Morena Vs. Commissioner of Sales Tax, , the Madhya Pradesh High Court was dealing with the case of agency and the Court held that the charging of remuneration for the work done for the principal cannot be equated to the payment of price. The decision has no application at all as the dealer in that case was acting as a commission agent. Learned counsel for the petitioner also relied upon the decision of this Court in The State of Tamil Nadu Vs. A. Rafeeq Ahmed and Co., where this Court held that the non-disclosure of the principal does not have any effect whatever on the real nature of the contract between the agent and the other contracting party. In that case there was no dispute about the agency and it was found that the exporting agent was the real agent of the assessee with the foreign buyer. It is needless to emphasis the question whether there is a agency or not has to be determined with reference to the facts of the case.

13. Learned counsel also referred to the decision of the supreme Court in Bagal Kot Cement Co. Vs. State of Mysore, where the Supreme Court was dealing with the case of a commission agent and the Supreme Court held that the restricted definition of the term ''dealer'' found in section 2(b) of the Central Sales Tax Act, 1956 is not wide enough to cover all kinds of agents such as a broker or a commission agent simpliciter, but it includes a del credere agent or a mercantile agent who carries on the business of buying or selling goods not as an agent simpliciter on behalf of the disclosed principal but as a principal vis-a-vis its customer. We find that the decision has no application. In Peninsular Traders, Perumbavoor and Another Vs. Dy. Commissioner, Sales Tax (Law), Kerala, the Supreme Court was dealing with the case of a distributor and the decision has no application. However, as held by the Supreme Court in Alwaye Agencies Vs. Dy. Commissioner of Agricultural Income Tax and Sales Tax, Ernakulam, , where the question is whether a contract is one of agency or of sale, the question has to be determined having regard to the terms and recitals of the agreement, the intention of the parties as may be spelt out from the terms of the document and the surrounding circumstances and having regard to the course of dealings between the parties. The Supreme Court also held that the mere fact that the word ''agent'' or ''agency'' is used or the words ''buyer'' and seller'' are used to describe the status of the parties concerned is not sufficient to lead to the irresistible inference that the parties did in fact intend that the said status would be conferred. Though it is stated that the agreement contains some of the ingredients of agency, the predominant intention as appears from the agreement is that the petitioner has not acted as an agent, but there is only the principal to principal relationship.

14. We are of the view that the terms of the agreement and the intention of the parties clearly show that the relationship between the petitioner and the Universal Radiators is on principal to principal basis and the surrounding circumstances of the case also establish the same status and as held by the Supreme Court, the mere fact that the petitioner is described as an agent in the agreement is not relevant.

15. The learned Special Government Pleader submitted that the Special Tribunal was correct in forming an opinion that Rule 26(6)(b) of the Tamil Nadu General Sales Tax Rules has not been complied with. We are unable to accept the submission. We find that the Sales Tax Appellate Tribunal, on the facts of the case, found that the rule has been complied with and there are no materials before the Special Tribunal to take a different view on this matter.

16. We therefore hold that the conclusion of the Special Tribunal that the petitioner is not an agent of the Universal Radiators and there is a relationship of principal to principal is quite reasonable on the facts and circumstances of the case. As already observed, we are not sitting in appeal over the order of the Special Tribunal. We are satisfied that the conclusion arrived at by the Special Tribunal is quite reasonable and there are no grounds to take a different view than the one arrived at by the Special Tribunal. We do not find any justifiable reason to interfere with the orders of the Special Tribunal. Accordingly, the writ petitions fail and they are dismissed. No costs.