Ramachandran Nair, J.
The connected revision cases are filed by the petitioner
challenging the common order of the Tribunal sustaining sales tax
assessment on the purchase of coco by the petitioner company for the
assessment years 1997-98 and 1998-99. We have heard counsel
appearing for the petitioner and Government Pleader for the
respondents.
2. The petitioner is a leading manufacturer of coco based
chocolates and allied products. Raw coco beans are purchased by the
petitioner directly and also through agents appointed by them. The
agents purchase coco from farmers as well as from small traders and
under agreement between them and the company, agents deliver coco at
the godowns of the company located at various centres. There is
written agreement between the company and the agents providing for
reimbursement of price paid to farmers/dealers, all the cost
incurred by the agents and also commission payable to them at
the agreed rate. Coco beans is admittedly an item taxable at the
point of last purchase in the State as provided in the First
Schedule to the KGST Act. Even though petitioner claimed that
the purchase is made through agents to whom commission only
was paid, the Assessing Officer noticed that the petitioner's
claim is contrary to facts because all the agents are registered
dealers who account the transactions as their purchases and
sales. In order to claim exemption from tax on purchase of coco
made by the agents for sale to petitioner, the petitioner issued
Form No.25 to the agents who in turn issued Form No.25 to the
dealers from whom they purchased coco. Further, the agreement
between the company and the agents establish that the company
is liable to pay the agent the entire cost incurred by them until
delivery of the goods at the stockyard of the company in the
various centres and besides reimbursement of the cost, the
company also pays certain amount which is termed as
commission in the agreement. The Assessing Officer found that
the transaction the company has with the agents is outright
purchase and the bifurcation of the price is only an arrangement
between the parties to avoid payment of tax on the actual
purchase cost incurred by the company. The Assessing Officer,
first appellate authority as well as the Tribunal after examining
the terms of the agreement and the accounts came to the
conclusion that the agency agreement is only a device to avoid
payment of tax on the taxable turnover which is the cost incurred
by the company until goods reach their stockyard where delivery
is given by the agents at the cost of the company. What we
notice is that though the entire cost reimbursed to the agent by
the company may come within the description of "purchase
turnover", the Assessing Officer has added only 15% of other
reimbursements to purchase price reimbursed by the company
to the agents for payment to farmers and dealers. Since the
assessment confirmed in first appeal is reconfirmed by the
Tribunal in second appeal, the company has come up with these
revision cases.
3. The contention raised by counsel for the petitioner is
that the transaction between the company and the agents is an
agency agreement whereunder company reimburses purchase
cost and expenses and the agents are paid commission.
However, Government Pleader referring to the Tribunal's
findings contended that the transaction is a pure arrangement of
purchase and sale between the parties and issuance of Form
No.25 by the company to the agents will clearly establish this
position. We are in complete agreement with this argument
because Form 25 prescribed under Rule 32(14) of the KGST
Rules is to help chain dealers to avail exemption on their
purchases leaving the last dealer to pay tax in terms of the
taxable entry in the Schedule which is last purchase. In fact,
admittedly all the agents of the petitioner are registered dealers
who on purchase of coco beans issues Form No.25 to the dealers
from whom they purchased and after making sales to the
company, they obtained Form 25 issued by the company and on
production of the same, the agents got sales tax exemption. Rule
32(14) is as follows:
"Every dealer in goods taxable at the point of
last purchase in the State shall, if he is not liable to
tax on such goods by reason of his not being the last
purchaser in the State, obtain a declaration in Form
25 from the person to whom he has sold the goods. A
blank book of declaration of form 25, shall be
obtained from the assessing authority, on payment of
a fee at the rate of seventy rupees per book of 50
forms. Every purchaser shall issue such a declaration
to the seller. The declaration so obtained shall be
submitted in duplicate to the assessing authority on or
before the fifteenth of the month succeeding that to
which the sales relate along with a statement of such
declarations showing the name and addresses of the
dealers to whom the goods were sold with the
particulars of sale bill, quantity, and value, and the
total turnover covered by such declarations."
What is clear from the above is that statutory Form 25 is issued
only when a dealer purchases goods from another dealer and the
declaration is to the effect that the selling dealer is not the last
purchaser liable to pay tax. Under the scheme of the Act and
Rules, unless the purchaser who issued Form 25 resells the
goods to another dealer in Kerala and obtain Form 25 issued by
such dealer, he will be liable to pay tax as the last purchaser. In
our view, the petitioner after issuing Form 25 prescribed under
Rule 32(14) could not even be allowed to raise the contention
that it is issued for administrative purposes which was the
argument rendered by the petitioner before the lower authorities
and before us. When a form prescribed under the statutory Rule
is issued, the contents therein binds the dealer who issues it and
so much so, petitioner does not have a right to contend that the
transactions against which the Form 25 were issued to the agents
do not represent actual purchases. Further, the Tribunal after
examining the terms of the agreement found that the purchase is
at the cost and risk of the agent and the company takes over the
responsibility over the goods only on delivery at the stockyard
of the company. So much so, whatever is the arrangement made
between the company and their agents for bifurcation of price,
such as purchase cost paid to farmers/dealers, freight and cost
incurred and margin paid by way of commission, the whole
transaction is purchase by the company and the entire cost
reimbursed by the petitioner to the agents, in our view, happens
to be the purchase cost which is nothing but purchase turnover
of the goods. In our view, the Assessing Officer was lenient in
favour of the petitioner because he has only estimated 15% of
the reimbursements over and above purchase cost reimbursed as
part of taxable turnover to be added to purchase cost. Inspite of
the factual position and the issuance of statutory declaration by
the petitioner to their procuring agents stating that petitioner
purchased the goods from them, counsel for the petitioner
submitted that the test of sale provided under Explanation 5 to
Section 2(xxi) of the KGST Act is not satisfied. Explanation 5
to Section 2(xxi) of the Act sets out the circumstances under
which transaction between agent and principal is treated as sale.
The said Explanation reads as follows:
"Explanation 5:- Notwithstanding anything to the contrary
contained in this act or any other law for the time being in force,
two independent sales or purchases shall, for the purposes of this
Act, be deemed to have taken place,--
(a) when the goods are transferred from a principal to his
selling agent and from the selling agent to the purchaser; or
(b) when the goods are transferred from the seller to a
buying agent and from the buying agent to his principal, if the
agent is found in either of the cases aforesaid.
(i) to have sold the goods at one rate and to have
passed on the sale proceeds to his principal, at another rate, or
(ii) to have purchased the goods at one rate and to
have passed them on to his principal at another rate, or
(iii) not to have accounted to his principal for the
entire collections or deductions made by him in the sales or
purchases affected by him on behalf of his principal; or
(iv) to have acted for a fictitious or non-existent
principal."
We do not think the above statutory provision is in conflict with
contract of agency covered by the Indian Contract Act. The
fundamental condition of agency arrangement is that the
principal will take the loss and consequences for bonafide acts
done by the agent in the course of purchase or sale made by the
agent on behalf of the principal. In this case admittedly the
agent purchased the goods with his funds and at his own cost
and risk and transports it to the godown of the petitioner and
only after petitioner accepts the goods and takes over
possession, the goods become the petitioner's property. We do
not know how the petitioner can contend that the purchase made
from farmers and dealers by the agent with his funds and at his
own cost and risk can be treated as purchase on behalf of the
petitioner. The goods procured by the agents are only sold to the
petitioner against Form 25 issued by the petitioner. Though the
arrangement is apparently stated as agency, the transactions
prove otherwise. The agency arrangement appears to be only a
scheme for splitting up of price between purchase cost, transport
cost, commission etc. to avoid tax on part of the turnover. In our
view, this is a clear attempt to reduce incidence of tax on the
actual turnover. We, therefore, cannot accept the contention of
the petitioner that the conditions provided in Explanation 5 to
Section 2(xxi) are not satisfied. In view of the findings above,
we dismiss the S.T. Revision cases.
Sd/-
C.N.RAMACHANDRAN NAIR
Judge
Sd/-
P.S.GOPINATHAN
Judge
True copy
P.S. to Judge
pms