G.K. Misra, C.J.
1. The following question of law has been referred under Section 24(1) of the Orissa Sales Tax Act, 1947 :
Whether on the facts and in the circumstances of the case, the Additional Sales Tax Tribunal is correct in holding that despatches of goods by rail to different places in West Bengal by the opponent and endorsements of the relevant R/Rs by his commission agent at Calcutta in favour of ultimate purchasers while the goods are in transit are not sales liable to be taxed under the Central Sales Tax Act in this State at the hands of the opponent ?
2. Material facts which have been found by the Tribunal in the impugned order dated 2nd January, 1969, may be stated in brief. The dispute is in respect of quarters ending 31st of December, 1961, to 30th of September, 1962. M/s. Ram Avattar Agarwalla & Co. (hereinafter to be referred to as the opposite party) is a registered dealer under the Central Sales Tax Act, 1956 (hereinafter to be referred to as the Act) at Jatni within Puri II Circle and deals in rice and paddy. It despatches rice and paddy to different places in the State of West Bengal in the name of its commission agent M/s. Madanlal Agarwalla (hereinafter to be referred to as the commission agent) of Calcutta. Subsequent to the despatch of goods, the railway receipts were being sent by the opposite party to the commission agent who in his turn endorsed the railway receipts (hereinafter to be referred to as the R/Rs) in favour of the ultimate purchasers while the goods were in transit without taking delivery of the goods. The purchasers took delivery of the goods on the strength of R/Rs, which were endorsed in their favour by the commission agent. While submitting returns to the sales tax authorities the opposite party did not pay sales tax on these despatches. Subsequently, it was detected that the R/Rs had been endorsed in favour of the ultimate purchasers while the goods were in transit. As''these turnovers had escaped assessment, the opposite party was noticed under Rule 10 of the Central Sales Tax (Orissa) Rules (hereinafter to be referred to as the Rules) to submit returns and produce the books of account. The assessing authority found that certain taxable turnover had escaped assessment during the quarters ending 31st of March, 1962, to 30th of September, 1962. The opposite party filed an appeal before the Assistant Commissioner, Sales Tax, who confirmed the assessments for the quarters ending 31st December, 1961, to 30th June, 1962 and dismissed the appeals. The assessment for the quarter ending 30th September, 1962, was enhanced. In second appeal, the Tribunal annulled the assessments under Rule 10 of the Rules, accepted the return figures and directed excess tax, if any, to be refunded. The question of law already extracted has been referred as arising out of this appellate order.
3. The following points of law arise for consideration out of the question of law referred to us:
(i) Is the sale in the course of inter-State trade ?
(ii) If so, is the assessment to be made by the sales tax authorities in Orissa ?
(iii) Did the commission agent effect the sale on behalf of the opposite party or on his own behalf ?
(iv) Is the opposite party or the commission agent as a dealer liable to pay tax under the Central Sales Tax Act ?
4. Section 3 of the Act, so far as material, runs thus :
3. A sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce if the sale or purchase....
(b) is effected by a transfer of documents of title to the goods during their movement from one State to another.
Explanation I.-Where goods are delivered to a carrier or other bailee for transmission, the movement of the goods shall for the purposes of Clause (b), be deemed to commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee.
Explanation II.-...
Undisputedly, the sale of the goods in this case to the ultimate purchasers in West Bengal was effected by the transfer of the R/Rs which were the documents of title to the goods during the movement of the goods from Orissa to West Bengal. Explanation I applies in terms. The goods were delivered to the railways. The movement of the goods commenced at the time of such delivery when the sale by transfer of the R/Rs was effected. The movement of the goods had not terminated as the delivery of the goods from the railways had not been taken.
On the aforesaid analysis, in terms of Section 3(b) read with explanation I of the Act the sale of the goods was clearly in the course of inter-State trade. This conclusion was not assailed by the learned Advocates for both the parties.
5. Section 9(1) of the Act, so far as relevant, runs thus :
9. (1) The tax payable by any dealer under this Act on sales of goods effected by him in the course of inter-State trade or commerce whether such sales fall within Clause (a) or Clause (b) of Section 3, shall be levied by the Government of India and the tax so levied shall be collected by that Government in accordance with the provisions of Sub-section (2), in the State from which the movement of the goods commenced....
Admittedly, in this case the movement of the goods commenced in the State of Orissa. Orissa State is, therefore, the appropriate State to levy and collect tax.
6. It is contended by the learned standing counsel that in the absence of a finding that the commission agent had the authority to sell the goods in his own name or had the right to pass a valid title, the conclusion of the Tribunal that the opposite party was not liable to pay tax on account of such inter-State sale is contrary to law.
Mr. Agarwalla, on the other hand, contends that the commission agent acted as principal vis-a-vis the purchasers and not as an agent of the opposite party and that from the point of time the R/Rs were transferred, the commission agent was a debtor of the opposite party and not an agent.
These contentions require careful examination as all the assessing authorities right up to the Tribunal recorded their findings one way or the other without resorting to an analysis of facts in the light of the correct legal position.
7. An 'agent' has not been defined in the Act. In the absence of such a definition its meaning in the Indian Contract Act is to be adopted. Section 182 of the Indian Contract Act defines an 'agent' and a 'principal'. It says :
An 'agent' is a person employed to do any act for another or to represent another in dealings with third persons. The person for whom such act is done, or who is represented, is called the 'principal'.
That in the absence of a definition in the Sales Tax Act the definition as given in the Indian Contract Act is to be adopted, is concluded by the decision of the Supreme Court in Srinivas Gopikishan Badruka v. The State of Andhra Pradesh [1962] 13 S.T.C. 393 (S.C.).
8. It has, however, been held by high authorities that the use of the word 'agency' has no special significance. In modern contracts it has acquired an extended meaning ; often the so-called agent is merely a buyer. One has, therefore, to look into the terms of the agreement. The covenant in the agreement between the principal and the commission agent may in certain cases involve transfer of goods.
In Hope Prudhomme and Company v. Hamel and Horley Ltd. A.I.R. 1925 P.C. 161, their Lordships brought out the aforesaid view in clearest terms in the following passage:
Notwithstanding the view taken by both the courts in India, the respondents have insisted, as they had a right to do, in an elaborate and useful argument, that in the legal sense of the word they were not agents but principals.
There is great force in the observations which were made to their Lordships upon the extension which modern business has given to the terms 'agent' and 'agency'. In many trades-particularly, for instance, in the motor-car trade-the so-called agent is merely a favoured and favouring buyer, one who under an overriding contract undertakes to do his best to find a market for the manufacturer's stock, who is given some special advantages, such as a special discount or preference in complying with his orders ; but who in each particular contract acts as a buyer from the manufacturer and sells at whatever price he can get, unless-as is sometimes the case-he is by a special provision in the overriding contract forbidden to sell too cheaply or required not to spoil the market by asking too much.
In Addulla Ahmed v. Animendra Kissen Mitter A.I.R. 1950 S.C. 15, Mahajan, J., (as he then was) observed that the first thing to see is what the parties have expressed in the commission note and what is the true effect of the language employed in it, read in the light of the material facts. His Lordship referred to the observation of Viscount Simon, Lord Chancellor, in Luxor (Eastbourne) Ltd. v. Cooper [1941] A.C. 108, to the following effect:
Contracts with commission agents do not follow a single pattern and the primary necessity in each instance is to ascertain with precision what are the express terms of the particular contract under discussion.
Similar view was also expressed by the Supreme Court in Hafiz Din Mohammad Haji Abdulla v. The State of Maharashtra [1962] 13 S.T.C. 292 (S.C.). Shah, J., observed as follows:
It is true that in commercial usage, especially in modern contracts, the expression 'agents' or 'agency' has acquired an extended meaning; often the so-called agent is merely a buyer who has been given favourable terms in a particular area to sell the manufacturer's or supplier's goods. The use of the expression agency in Clause (9) has therefore no specialimportance.
9. The principle as to when a commission agent would be treated as a mere agent or not has been masterly expressed in Kalyanji Kuwarji v. Tirkaram Sheolal and Ors. A.I.R. 1938 Nag. 254. After a thorough analysis of the relevant law on the point, his Lordship Vivian Bose, J., (as he then was) laid down the test in the following passage :
The test to my mind is this : Does the commission agent when he sells have authority to sell in his own name Has he authority in his own right to pass a valid title If he has then he is acting as a principal vis-a-vis the purchasers and not merely as an agent and therefore from that point on he is a debtor of his erstwhile principal and not merely an agent. Whether this is so or not must of course depend upon the facts in each particular case. It may be that these terms will be found to exist in most commission agency cases, but again there may be cases in which they are absent and in which the relation of principal and agent continues to the end. Therefore my observations must not be carried beyond the facts of this case.
This decision was followed by a Full Bench of the Madras High Court in Kandula Radhakrishna Rao and Ors. v. The Province of Madras [1952] 3 S.T.C. 121 and a Division Bench of the Mysore High Court in Bagalkot Cement Co. Ltd. v. State of Mysore [1970] 25 S.T.C 520. With respect, we accept Kalyanji Kuwarji v. Tirkaram Sheolal and Ors. A.I.R. 1938 Nag. 254 as laying down the correct test.
10. If this test is applied, the case before the Tribunal could not have been finally disposed of without making a probe into the question whether the commission agent acted as a mere agent or by virtue of the covenant in the agreement between the opposite party and the commission agent, he acted as a principal vis-a-vis the purchasers. If the commission agent had authority in his own right to pass a valid title by endorsement of the R/Rs in favour of the purchasers, then he did not act as an agent of the opposite party and as such the opposite party cannot be assessed in respect of the turnover of sale arising out of the transfer of title to the goods while in transit by the commission agent in favour of the purchasers. If, on the other hand, it is found as a fact that the commission agent had no authority to sell the goods in his own name and had no authority in his own right to pass a valid title, the opposite party is to be assessed in respect of the inter-State sale so effected. None of the assessing authorities was alive to the aforesaid distinction in the role of the commission agent depending upon the covenant of agreement. The Tribunal, when the case goes back to it, would call upon the opposite party to produce the commission agreement and other facts and circumstances to determine the nature of the transaction between the commission agent and the purchasers.
11. On the aforesaid analysis, it is not possible to say on the facts of this case whether the commission agent effected the sale to the purchasers by endorsement of the R/Rs on behalf of the opposite party or on his own behalf and accordingly it is not possible to answer the question whether in respect of the aforesaid inter-State sale the opposite party or the commission agent would be liable to assessment.
12. To sum up, our conclusions on the four points of law formulated by us are these :
(i) The sale by the commission agent to the purchasers in West Bengal by endorsement of the R/Rs while the goods were in transit was in the course of inter-State trade.
(ii) The State of Orissa was entitled to assess such inter-State sale.
(iii) On the materials on record it is not possible to say whether the commission agent had authority to sell the goods to the purchasers in his own right to pass a valid title or the sale was on behalf of the opposite party.
(iv) Without a further probe into materials it is not possible to say whether the opposite party cannot be assessed in respect of the impugned inter-State sale. The Tribunal after the case goes back to it must call upon the parties to produce the relevant materials for determination of the real character of the impugned inter-State sale.
13. On the aforesaid analysis, our answer to the question of law referred to us would be in the negative, that is to say, the Tribunal was not correct in saying that the opposite party is not liable to be taxed in respect of the impugned inter-State sale. The Tribunal has to ascertain further facts before recording its conclusion one way or the other.
14. In the result, the references are allowed as indicated above. In the circumstances, parties to bear their own costs.
K.B. Panda, J.
15. I agree.