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Bagal Kot Cement Co. v. State Of Mysore .
Factual and Procedural Background
The appellant, Bagal Kot Cement Co. Ltd., manufactures cement. For the period 1 April 1961 to 31 March 1962 it filed a return under the Central Sales Tax Act, 1956 (“Central Act”) showing a turnover of ₹1,11,02,243 and paid ₹2,25,317.55 as tax. No objection to liability was raised at that stage.
Subsequently, the company appealed to the Deputy Commissioner of Commercial Taxes contending it was not a “dealer” because it sold cement only as selling agent of the State Trading Corporation of India Ltd. (“STC”). The Deputy Commissioner, the Mysore Sales Tax Appellate Tribunal (in second appeal), and the High Court of Mysore (in revision under s. 23 of the Mysore Sales Tax Act, 1957 read with s. 9(2) of the Central Act) all rejected the claim. The present appeal to the Supreme Court was brought by special leave.
Legal Issues Presented
- Whether the appellant company was a “dealer” within the meaning of Section 2(b) of the Central Sales Tax Act, 1956 in respect of inter-State sales of cement made during 1961-62.
- If the appellant was not such a dealer, whether the liability to pay Central sales tax rested instead on the State Trading Corporation of India Ltd.
Arguments of the Parties
Appellant’s Arguments
- Under the Cement Control Orders of 1958 and 1961 it was obliged to sell all cement to STC, which appointed it merely as a selling agent; therefore the sales were those of STC, not of the appellant.
- Because invoices were raised on behalf of STC and sales were made under STC’s directions at controlled prices, the appellant was not carrying on an independent business of selling goods.
- Section 2(dd)(i) of the Central Act treats the place of business of an agent as that of the principal; this shows STC, not the appellant, was the dealer.
Respondent’s Arguments
- The appellant itself carried on the business of selling cement: it possessed the goods, issued invoices in its own name, transferred property in the goods, collected sale price and sales tax, and then remitted net proceeds to STC.
- Section 2(b) does not require ownership of the goods; a mercantile or del credere agent acting as principal vis-à-vis customers is a dealer.
- Section 2(dd)(i) is irrelevant because the appellant, not STC, satisfied the statutory description of “dealer.”
- Having voluntarily collected and paid the tax, the appellant cannot retract liability on a contrary legal theory.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Kandula Radhakrishna Rao v. Province of Madras, AIR 1952 Mad 718 (FB) | A commission or mercantile agent who has control over the goods and passes title to buyers without disclosing the principal falls within the statutory definition of “dealer.” | The Supreme Court adopted this reasoning to hold that the appellant, possessing and selling cement in its own name, was a dealer under s. 2(b) of the Central Act. |
Court’s Reasoning and Analysis
The Court first affirmed that inter-State sales of cement are taxable under the Central Act; the sole controversy was the identity of the dealer liable to pay that tax. It examined:
- Findings of fact: Customers dealt exclusively with the appellant; they were unaware of STC. The appellant issued its own invoices, had possession of cement, and transferred title directly to buyers.
- Contractual terms: Clauses of the agency agreement authorised the appellant to “enter into contracts for sale,” “collect State or inter-State sales tax,” and “discharge all liabilities devolving upon them as dealers.” Only the net sale proceeds (after deduction of tax and commission) were credited to STC monthly.
- Statutory definitions: Section 2(b) defines “dealer” as “any person who carries on the business of buying or selling goods.” Sections 2(g) and 2(h) define “sale” and “sale price” in terms that do not require ownership by the seller.
- Nature of the appellant’s role: By virtue of possession, authority, and contractual obligation to pass property and collect tax, the appellant was a mercantile or del credere agent acting as principal toward customers, not a mere broker.
- Rebuttal of Section 2(dd)(i) argument: That provision concerns attribution of place of business; it does not alter who is a dealer. Since the appellant itself carried on the sales business, STC was not the dealer.
Consequently, the Court agreed with the lower authorities that the appellant fell squarely within Section 2(b) and was liable under the charging provision, Section 6.
Holding and Implications
Appeal dismissed with costs.
The decision affirms that a selling agent who possesses goods, contracts in its own name, passes property, and collects the price—including sales tax—qualifies as a “dealer” under the Central Sales Tax Act. The immediate effect is to uphold the tax assessment against Bagal Kot Cement Co. Ltd.; no broader doctrinal change was announced, but the ruling underscores the liability of mercantile agents acting as principals in inter-State transactions.
N.L Untwalia, J.— In this appeal by special leave the question for determination is whether the appellant company is a dealer within the meaning of Section 2(b) of the Central Sales Tax Act, 1956 — hereinafter referred to as “the Central Act”, liable to pay sales tax thereunder.
2. The appellant, Bagal Kot Cement Co. Ltd., is a manufacturer of cement. For the period April 1, 1961 to March 31, 1962 it filed a return before the assessing authority showing a total turnover of Rs 1,11,02,243. The entire sum was shown as taxable turnover on which an amount of Rs 2,25,317.55 had been collected and paid as tax. No claim was made on behalf of the appellant before the assessing authority that it was not liable to pay any sales tax. The authority accepted the return and assessed the tax as per the appellant's figure. It appears the appellant was advised thereafter to file an appeal before the Deputy Commissioner of Commercial Taxes and take the stand that in respect of the transactions in question it was not a dealer and was not liable to pay any tax. The Deputy Commissioner dismissed the appeal. A second appeal filed by the appellant before the Mysore Sales Tax Appellate Tribunal also failed. The company took up the matter in revision to the High Court under Section 23 of the Mysore Sales Tax Act, 1957 — hereinafter called the State Act, read with Section 9(2) of the Central Act. The High Court dismissed the revision. Hence this appeal.
3. Under the Cement Control Orders, 1958 and 1961 the appellant was bound to sell the entire quantity of cement to the State Trading Corporation of India Ltd. By an agreement executed between the parties the corporation appointed the company as its selling agent for sale of cement to different customers on its behalf at the controlled price and in accordance with the instructions which may be given from time to time by the corporation. Pursuant to the agreement the company made the inter-State sales and realised sales tax from the customers under the Central Act. Its contention is that being an agent of the State Trading Corporation and having effected all the sales under its direction it was not a dealer as defined in Section 2(b) of the Central Act and hence was not liable to pay any sales tax thereunder. The liability was of the corporation.
4. In our opinion there is no substance in the appellant's argument. After having realised the sales tax from the various customers and voluntarily and ex contractu paid it as per the return submitted it was ill-advised to take an unsustainable stand of its not being liable to pay sales tax under the Central Act.
5. There cannot be any doubt that the sales of cement made during the period in question in the course of inter-State trade were exigible to sales tax under the Central Act. The question for consideration is who was liable to pay it? The liability was of the dealer as defined in Section 2(b). If the appellant company was the dealer which had made the sales as defined in Section 2(b), the liability to pay the tax under the charging Section 6 was its. If it was not a dealer then obviously it was not liable to pay any tax.
6. To determine the point at issue as mentioned above it is necessary to advert to the primary facts and the course of conduct of the business of the appellant as per the terms of the agreement entered into with the State Trading Corporation. The High Court has pointed out that the Deputy Commissioner found:
“(1) The company was appointed by the State Trading Corporation as its selling agent;
(2) It had sold cement at the price specified in the Cement Control Order to the customers who held permits from the governmental authorities;
(3) The customers purchased the cement from the company directly and they were not aware of the identity of the principal namely the State Trading Corporation.”
The High Court also refers to the fact that the appellant did not place the relevant papers pertaining to the transactions before the authorities below. But its learned Counsel conceded that the invoices were issued by the company, that the company had possession and the custody of the goods and it was authorised to transfer the property in the goods to the purchasers. These facts were not disputed before us. Rather in the special leave petition it is admitted that the invoices were issued by the appellant company in its own name.
7. We may now refer to some relevant clauses of the agreement between the parties. They are as follows:
“1. The corporation hereby appoints the agents to take on its behalf delivery of the entire cement produced at the works of Bagal Kot Cement Co. Ltd. and to arrange for the distribution of such cement in accordance with such directions as may be issued by the corporation from time to time.
2. The agents may enter into contracts for sale of cement on behalf of the corporation and shall, inter alia, arrange for the despatch of cement to the consignees, submit bills for the sales, receive payments in connection therewith and do all acts and things that may be necessary to handle effectively, on behalf of the corporation, all contracts of sale of cement entered into as aforesaid.
7. (a) The agents shall sell cement at such prices as may be indicated by the corporation from time to time.
(b) The agents shall collect State or inter-State sales tax and other local and State Government taxes as may be leviable, and pay the same in accordance with the law. They shall also discharge all liabilities devolving upon them as dealers under the various sales tax Acts and Rules.
13. The agents shall credit to the corporation at the end of every month the sale proceeds of the cement sold by them at a price referred to in clause 7 above, as reduced by:
(a) the amount paid to producers according to the provisions of clause 9 above;
* * *
(e) the agents remuneration referred to in clause 8 above.”
8. It would thus be seen from the course of conduct of the appellant's business and the terms of agreement that the company was not a mere commission agent or broker selling the goods on behalf of its principal — the corporation. There was no privity of contract between the various customers of cement and the corporation. No property in the goods sold was passed by the corporation to them. After taking the symbolical delivery of the entire cement produced at the works of the company as per clause (1) of the agreement the company was in possession and custody of the goods. It was entering into contracts for sale of cement and selling it. The property in the goods was passed on to the buyers by the company. Under clause (7) it was authorised to collect sales tax both on intra-State and inter-State sales, and to discharge its liability devolving upon it as dealer under the various Sales Tax Acts and Rules. As per clause (13) of the agreement only the difference of price after deducting the company's remuneration was to be credited to the corporation's account.
9. Section 2(b) of the Central Act reads as follows:
“ ‘Dealer’ means any person who carries on the business of buying or selling goods, and includes a Government which carries on such business;”
“Sale” within the meaning of clause (g) means any transfer of property in goods by one person to another for cash or for deferred payment or for any other valuable consideration. “Sale price” under clause (h) means the amount payable to a dealer as consideration for the sale of any goods. On the facts stated above it is abundantly clear that sale was made by the appellant company as it effected transfer of property in the goods to the customers and realised sale price from them by issuing invoices in its own name. The restricted definition of the term “dealer” in the Central Act is not wide enough to cover all kinds of agents such as brokers or a commission agent simpliciter as many of the State Acts include them within their definitions. As for example the term “dealer” defined in Section 2(k) of the Mysore State Act includes
“a commission agent, broker or del credere agent or an auctioneer or any other mercantile agent by whatever name called, who carries on the business of buying, selling, supplying or distributing goods on behalf of any principal;”
The term “dealer” as defined in the Central Act would, however, include 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 customers.
10. In Halsbury's Laws of England, Fourth Edition, Vol. 1, para 712 it is stated:
“A mercantile agent is one having, in the customary course of his business as such agent, authority either to sell goods, or to consign goods for the purpose of sale, or to buy goods, or to raise money on the security of goods. An agent may be a mercantile agent although he has no general occupation as an agent, or has only one customer, or although his general occupation is that of an independent dealer in the commodity entrusted to him, provided that he acts in the transaction in his capacity as mercantile agent; but he must not be a mere servant or shopman.”
In para 713 is stated:
“A del credere agent is one who, usually for extra remuneration, undertakes to indemnify his employer against loss arising from the failure of persons with whom he contracts to carry out their contracts.”
11. In the judgment under appeal the High Court repelled the stand of the appellant relying upon the decision of a Full Bench of the Madras High Court in Kandula Radhakrishna Rao v. Province of Madras represented by the Collector of West Godavari, Eluru AIR 1952 Mad 718. Referring to the identical definition of the ‘dealer’ in the Madras Act Rajamannar, C.J delivering the judgment on behalf of the Bench has stated at p. 723, column 2:
“In the case of a commission agent, the accepted mercantile practice is that he has control over or possession of the goods and he has the authority from the owner of the goods to pass the property in and title to the goods. If this is so, undoubtedly when a commission agent sells goods belonging to his principal with his authority and consent and without disclosing to the buyer the name of the owner, there is certainly a transfer of property in the goods from the commission agent to the buyer. A business which consists in such transactions can properly be described as a business of selling goods. A similar position would arise even in the case of a commission agent buying for an undisclosed principal. A commission agent doing this kind of business would in my opinion, fall within the definition of dealer in the Sales Tax Act. Neither the definition of dealer nor of sale contemplates as a necessary condition, that the goods sold should belong to the person selling or buying. There can be a sale or purchase on behalf of another.”
We agree with the above view of the learned Chief Justice.
12. Mr D.V Patel, learned Counsel for the appellant heavily relied on the definition of the expression “place of business” given in clause(dd) of Section 2 of the Central Act which includes
“(i) in any case where a dealer carries on business through an agent (by whatever name called), the place of business of such agent;”
Counsel submitted that the above inclusive definition would show that it was the corporation which was carrying on the business through the appellant company as its agent, and for the purpose of the Central Act the place where the business was carried on by the company as the corporation's agent would be the place of the business of the corporation. On the other hand, learned Additional Solicitor General II pointed out that if the appellant was the dealer within the meaning of Section 2(b) then it was not the corporation which was carrying on the business through it as an agent to attract the definition given in clause (dd). In our judgment it was the appellant company which carried on the business of selling cement although it was acting as selling agents of the corporation. The corporation was not the dealer which effected the sales but it was the company which did so.
13. For the reasons stated above, we find no substance in this appeal. It is accordingly dismissed with costs.
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