Shah, J.— The Sales Tax Tribunal, Bombay, referred under Section 23 of the CP & Berar Sales Tax Act, 1947 the following question to the High Court of Judicature at Bombay:
“Whether the transactions in dispute amounted to sales in view of the agreements produced by the applicants at pp 195 to 205 of the Assistant Commissioner's record?”
Following an earlier judgment in Civil Miscellaneous Case No. 305 of 1954 — Abdul Rashid Hafiz Din Mohammad v. State of Bombay — the High Court answered the question in the affirmative. Messrs Haji Din Mohammad Haji Abdulla — who are hereinafter referred to as “the assessees” — have appealed to this Court with certificate of fitness.
2. The assessees are bidi merchants at Kamptee, District Nagpur in the former State of Madhya Pradesh. They held at the material time a licence issued by the Government of the Central Provinces for the manufacture and sale of bidis in and outside the State of Madhya Pradesh. Between 13-11-1947 and 1-11-1948, the assessees despatched bidis to merchants at diverse places in India, each merchant executing an agreement in the form of a letter addressed to the assessees, a sample form whereof is set out here below:
“(1) You will have to meet my demand of bidis in my area.
(2) You will have to give delivery of bidis at Manmad Station.
(3) I will sell your bidis at the rate fixed by you adding to it the expenses incurred.
(4) Money towards goods will be remitted to you as sales are effected or sometimes remittance will be made in advance.
(5) After the goods are delivered, I shall be responsible for the damages or risk at my place or in transit.
(6) I shall take from you, in lieu of my labour Rs 3/3 as commission per pitara.
(7) You will have the right to increase or reduce the rate of bidis.
(8) On the goods remaining in stock when the rate is increased or decreased, necessary adjustment of accounts will be made.
(9) If I were to be acting in contravention of these conditions, you will have the right to cancel my agency. You will have right to make arrangements for the sale of your bidis as you think best.”
3. Whether this agreement creates a relation of principals and agent or vendors and purchaser between the assessees and the merchant to whom bidis were despatched is the sole question which falls to be determined in this appeal. The relation between the parties has manifestly to be ascertained in the light of the terms incorporated in the letter and the attendant circumstances. The designation which a party chooses to give to the relation, especially in cases of liability to pay tax, is of little consequence. The Court has in each case, having regard to the terms and the attendant circumstances, to ascertain the true relation between the parties without giving undue importance to the special expressions used by them. 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 special importance.
4. A sale is transfer of property for a price. That is the true concept of “sale” under the Sale of Goods Act and also under the CP & Berar Sales Tax Act. Again, liability to pay sales tax arises under the CP & Berar Sales Tax Act if there be a sale of goods liable to tax, and not otherwise. Let us see whether the covenants in the agreement contemplate the transfer of property in the bidis despatched by the assessees to the merchants to whom they are despatched. By clause (3) of the agreement, the merchant receiving the bidis has agreed to sell them at the rates fixed by the assessees: he is only entitled to add to the rate fixed by the assessees the expenses incurred. By clause (6) the merchant is entitled to Rs 3/3 as commission per box. That remuneration is expressly stated to be in lieu of “labour”. By clause (7) the assessees are given the right to increase or reduce the rate of bidis; even in respect of goods which are in stock with the merchant the rate may be increased or decreased and on such alteration of the rate there is an obligation to make necessary adjustments in the accounts (see clause 8). By clause (9) if the merchant is found acting in contravention of the conditions the assessees have the right to cancel the agency and have the right to make arrangements for the sale of bidis (remaining on hand) as they think best. Clause (9) therefore contemplates that if after the bidis have been despatched and before they are sold, “the agency” of the merchant is cancelled the assessees would have the right to arrange for sale of the bidis remaining in stock. These clauses clearly indicate that the bidis even in the hands of the merchants to whom they were despatched remained the property of the assessees. By clauses (3) and (9) these bidis in the hands of the merchants are expressly referred to as “your bidis”. There is no warrant for assuming that the expression “your” in these clauses was intended to signify merely the bidis manufactured by and not of the ownership of the assessees. Clause (4) emphasizes that the property in the bidis despatched to the merchants remained with the assessees. By that clause the merchant undertakes to remit “money towards goods” after sales are effected. Therefore under the agreement between the parties the goods are to be sold at a price fixed by the supplier, the prices are liable to be altered at the instance of the supplier, the person to whom the goods are supplied is to receive a fixed remuneration for his exertion, and is liable to remit the price only after the sale is effected. There are clear indications that the relation is of principals and agent and not of vendors and purchaser. The terms of clause (1) imposing an obligation upon the assessees to meet the demands of bidis of the merchants in the areas assigned to them further emphasizes that character of the relation between the parties. It is true that by clause (5), for damages or risk to the goods during transit or in the shop of the merchant, the latter is responsible, but that does not alter the true nature of the right in which he holds the goods. It is open to an agent to undertake a liability in respect of goods after they are delivered to him even though the property in goods does not pass to him. Clause (2) providing for giving delivery at the town where the merchant resides has no special significance. The diverse clauses of the agreement, in our judgment, create a relationship of principals and agent and not of vendors and purchaser between the assessees and the merchants to whom the bidis were despatched.
5. The appeal will therefore be allowed, and the answer to the question referred by the Sales Tax Tribunal will be recorded in the negative. The appellants will be entitled to their costs of this appeal.