# BHOPAL SUGAR INDUSTRIES LTD v. SALES TAX OFFICER, BHOPAL

- **Citation:** [1977] 3 S.C.R. 578
- **Court:** Supreme Court of India
- **Decided:** 1977-04-14
- **Bench:** P. N. Bhagwati, N. L. Untwalia, S. Murtaza Fazal Ali
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/bhopal-sugar-industries-ltd-v-sales-tax-officer-bhopal-7209
- **Pages:** 15

## Headnote

Sales Tax-Dealer consun1ing goods for his own purposes-If a sale exitible to tax.
The appellant. Vlas a manufacturer of sugar.
It also ran in the mill premises a petrol pump selling high speed diesel oil, petrol and other lubricant
oils of Caltex.
A part of these oils was consumed by the appel1'l<lt for its
own trucks and other vehicles.
The Sales tax authorities
assessed to tax
C
the petrol consumed by the appellaut for its own use as well.
On appeal
the Commissioner of Sales Tax held that since the appellant was an agent
of Caltex, title to the property in the goods sold by it remained with the
A
principal and as such that part of the petrol and other oils consumed by it
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was also a sale ·exigible to tax.
Allowiag the appellant's
~ppeal
HELD : The petrol consumed by the appellant for its
own
purposes
was not a sale exigible to tax.
A conspectus of the terms of the agreement
showed that after taking delivery, the appellaat became the owner of the goods
and if it conc;umed the same for its own purposes, it was doing so not as
an agent but as owaer.
[592 El
·
!(a) In a contract of sale title to property in the goods passes on to the
buyer on delivery of the goods for a price paid or promised.
Once this
happens the buyer becomes owner of the property and the seller has no
vestige of title. left in the property.
Having regard to the complexities of
modem times the concept of sale has undergone a change and made a departure fron1 the old doctrine of laissez faire.
Even if the seller, by an agreement, imposed a number of restrictions on the buyer, such for example as,
fixing of price, submission of statement of accounts, area. of sale and so On
these resμ-ictions would not per se convert a contract of sale into one of
agency.
[581 HJ
(b) A contract of agency differs from a contract of sale inasmuch as an
agent, after taking delivery of the property, does not sen it a6 his ovm but
selbi it as the prope1ty of the principal under his instructions and directiong.
[582 Bl
{c) While interpreting the terms of an .agreement, the Court has to look
to the substance rather than the form of the agreement.
Use of words like
.. agentH or "agency", "buyer" and "seller" is not sufficient to lead to the inference that the parties did in fact intend that the said status would be conferred. In certain trades, the word "agent" is often used v:ithout any reference
to the law of principal and agent.
[582 F-G]
Sri Tirtunala Venkates'lt·ara Tiniber and Ba111boo Finn v. Co111111ercial
Tax Officer, Rajahmundry, 21 STC 313, 316 followed.
IV. T. Lam and Sons v. Goring Brick Company Ltd. LR. [1932] 1
KBD 710, 717, Gordon Woodroffe & Co. v. Sheikh M. A.. Ma/id & Co.
[1966] Supp. SCR I, 3-4 and Daruvala Bros. (P) Ltd. v. Commissioner
of Income-tax (Central) Bombay, 80 !TR 213 referred to.
Foley v. Classigate Coaches Ltd. [1934] 2 K B D 1,
Michelin
Tyre
Company Ltd. v. Macfarlane (Glasgow) Ltd. (in Liquidation), [1917]
2 Scots. L.T. 205, Financings Ltd. v Stimson, [1962] 2 All. ll.R. 386,
t
BHOPAL SUGAR INDUSTRIES LTD. v. S.T.O. (Fazal Ali, J.) 5 79
Willcox & Gibbs Sewing Machine Co111pany v. Daniel S. Ewing, 35 U.S.
Law. Ed. 882, 884 held inapplicable.
In the instant case, the evidence furnished by the agreement was sufficient
to conclude (a) tha.t the goods were supplied not on consignment basis but
by way of outright sale; (b) that the agreement was to sell petrol and other
oils, after the dealer had bought the property from Ca1teX:, at price<J fiXed
by that company; (c) that stipulation of sale price was to protect the company's
A
goodwill and to ensure quality of goods to be distributed-in fact stipulation
B
of price which is generally a common term in all agreements between mono·
polistic companies &nd their distributors did not detract from the · freedom
of contract of sale; (d) sale by the apellant to other customers did not dis·
close that the property belonged to Caltex; (e) it was the appellant that bore
losses due to leakage, driage and evap

## Text

_Characters 0–39,045 of 43,536. This is a partial read: ask again with offset=39045 for what follows._

A
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578
,
BHOPAL SUGAR INDUSTRIES LTD.
v.
SALES TAX OFFICER, BHOPAL
April 14, 1977
[P. N. BHAGWATI, N. L. UNTWALIA, AND S. MURTAZA FAZAL ALI, JJ.J
Sales Tax-Dealer consun1ing goods for his own purposes-If a sale exitible to tax.
The appellant. Vlas a manufacturer of sugar.
It also ran in the mill premises a petrol pump selling high speed diesel oil, petrol and other lubricant
oils of Caltex.
A part of these oils was consumed by the appel1'l<lt for its
own trucks and other vehicles.
The Sales tax authorities
assessed to tax
C
the petrol consumed by the appellaut for its own use as well.
On appeal
the Commissioner of Sales Tax held that since the appellant was an agent
of Caltex, title to the property in the goods sold by it remained with the
A
principal and as such that part of the petrol and other oils consumed by it
D
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was also a sale ·exigible to tax.
Allowiag the appellant's
~ppeal
HELD : The petrol consumed by the appellant for its
own
purposes
was not a sale exigible to tax.
A conspectus of the terms of the agreement
showed that after taking delivery, the appellaat became the owner of the goods
and if it conc;umed the same for its own purposes, it was doing so not as
an agent but as owaer.
[592 El
·
!(a) In a contract of sale title to property in the goods passes on to the
buyer on delivery of the goods for a price paid or promised.
Once this
happens the buyer becomes owner of the property and the seller has no
vestige of title. left in the property.
Having regard to the complexities of
modem times the concept of sale has undergone a change and made a departure fron1 the old doctrine of laissez faire.
Even if the seller, by an agreement, imposed a number of restrictions on the buyer, such for example as,
fixing of price, submission of statement of accounts, area. of sale and so On
these resμ-ictions would not per se convert a contract of sale into one of
agency.
[581 HJ
(b) A contract of agency differs from a contract of sale inasmuch as an
agent, after taking delivery of the property, does not sen it a6 his ovm but
selbi it as the prope1ty of the principal under his instructions and directiong.
[582 Bl
{c) While interpreting the terms of an .agreement, the Court has to look
to the substance rather than the form of the agreement.
Use of words like
.. agentH or "agency", "buyer" and "seller" is not sufficient to lead to the inference that the parties did in fact intend that the said status would be conferred. In certain trades, the word "agent" is often used v:ithout any reference
to the law of principal and agent.
[582 F-G]
Sri Tirtunala Venkates'lt·ara Tiniber and Ba111boo Finn v. Co111111ercial
Tax Officer, Rajahmundry, 21 STC 313, 316 followed.
IV. T. Lam and Sons v. Goring Brick Company Ltd. LR. [1932] 1
KBD 710, 717, Gordon Woodroffe & Co. v. Sheikh M. A.. Ma/id & Co.
[1966] Supp. SCR I, 3-4 and Daruvala Bros. (P) Ltd. v. Commissioner
of Income-tax (Central) Bombay, 80 !TR 213 referred to.
Foley v. Classigate Coaches Ltd. [1934] 2 K B D 1,
Michelin
Tyre
Company Ltd. v. Macfarlane (Glasgow) Ltd. (in Liquidation), [1917]
2 Scots. L.T. 205, Financings Ltd. v Stimson, [1962] 2 All. ll.R. 386,
t
BHOPAL SUGAR INDUSTRIES LTD. v. S.T.O. (Fazal Ali, J.) 5 79
Willcox & Gibbs Sewing Machine Co111pany v. Daniel S. Ewing, 35 U.S.
Law. Ed. 882, 884 held inapplicable.
In the instant case, the evidence furnished by the agreement was sufficient
to conclude (a) tha.t the goods were supplied not on consignment basis but
by way of outright sale; (b) that the agreement was to sell petrol and other
oils, after the dealer had bought the property from Ca1teX:, at price<J fiXed
by that company; (c) that stipulation of sale price was to protect the company's
A
goodwill and to ensure quality of goods to be distributed-in fact stipulation
B
of price which is generally a common term in all agreements between mono·
polistic companies &nd their distributors did not detract from the · freedom
of contract of sale; (d) sale by the apellant to other customers did not dis·
close that the property belonged to Caltex; (e) it was the appellant that bore
losses due to leakage, driage and evaporation in storage and (f) reimbursen1ent
by the company of transport charges and handling expenses and also reimbursement of supplies made by the appellant to certain designated custon1ers
showed that the agreement was a contract of saJe and not of agency.
. Further, the term requiring the dealer to furnish statements of sales and
other matters showed that the company wan!ed to keep itself fully infonne<l
of the proper conduct of the business in order to maintain its good\vill an<l
to. terminate the agreement in case it found that the appellant was misusing
the privilege given to it.
The term "commission and allowadlces" indicated
that certain special benefits were conferred by the company on its distributors.
It did not show that it was an agency.
Nor was the term requiring the
appellant to furnish security for the due observance and performance of the
stipulations an indication that the agreement was an agency.
Belthezar and Son v. E. M.. Abowatlr, AIR 1919 P.C. 166, 167 referred to.
Ganesh Export and Import Cornpany v. Jl..fahadeolal
Matf1n1al, AIR
1956 Cal. 188 approved.
CivIL APPELLATE JURISDICTION : Civil Appeals Nos. 1135-1138
c
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Ot 1972.
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Appeals by Special Leave from the Judgment and Order dated the
5th May, 1970 of the Commissioner of Sales Tax, Madhya Pradesh 1.1
Revision Case Nos. 2-5/RMS of 1968-1969 respectively.
S. T. Desai, (Mrs.) Anjali K. Varma and Sri Narain for the Appellant.
Ram Panjwani, H. S. Parihar and I. N. Shroff for Respondent.
The Judgment of the Court was delivered by
FAZAL Au, J.-These appeals by special leave are directed against
the order of the Commissioner of Sales Tax dated May 5, 1970 rejecting the revision filed by the appellant before him against the order of
the Appellate Assistant Commissioner, Sales Tax, imposing sales tax.
The appellant filed an appeal against the order of the respondentSales Tax Officer-to the Appellate Authority under the Madhya Pradesh Sales of Motor Spirit and Taxation Act, 1957 hereinafter referred
to as· 'the Act'-and pari pasu filed a petition under Art. 226 of the
Constitution in the High Court of Madhya Pradesh challenging the
constitutionality of the Act and the assessments
made in pursuance
thereof;
The High Court, by its judgment dated January 25, 1961,
dismissed the petition of the appellant: · The appellant then approached this Court through a special leave petition and also a petition
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580
SUPREME COURT REPORTS
[ 1977) 3 S.C.R.
under Art.
32 of the Constitution but without anv success.
Tilis
Court by its judgment dated December 21, 1962, held that the High
Court had erred in assuming jurisdiction in deciding disputed questions involved in the petition and should have insisted on the appellant to move the Appellate Authority provided under the Act The
petition under Art. 32, however, was allowed by this Court and a
part of the definition of "sale" in s. 2( 1) of the Act was declared
ultra vires.
In the instant case, however, we are not concerned with
this aspect of the matter.
In compliance with the orders of this Court, the appellant filed an
appeal before the Appellate Assistant Commissioner of Sales .Tax
which. was allowed by his order dated March 6, 1963, and the case
was remanded to the Sales Tax Officer for fresh assessment
after
making necessary enquiries.
Thereafter the respondent Sales Tax
Officer assessed the appellant afresh by his order dated October 20,
1963, and made similar assessments for the other periods.
Ag;linst
this order the appellant moved this Court again bnt ultimately
withdrew the petition and filed a revision petition under s. 28 of the
Act to the Commissioner of Sales Tax, Madhya Pndesh. The Commissioner, after hearing the arguments of both the parties, invited
further documents and after making further queries upheld the order
of the Appellate Assistant Commissioner of Sales Tax holding that the
appellant was liable to pay sales tax inasmuch as the contract which
was entered into between the appellant and Caltex (India) Ltd.
was
a pure and simple contract of agency and not a contract of sale.
The
Commissioner opined that as the contract was one of agency, the title
to the property remained in the Caltex (India) Ltd. and if the appellant used the petrol for its own purposes as agent, then such a user
would amount to a sale of the property of the Company by the agent
to itself so as to be exigible to sales tax.
It is against the order of
the Commissioner dated May 5, 1970 that the appellant has c0me
up to this Court after obtaining special leave.
We have heard counsel for the parties at very great length and
we have also gone through the documents filed by the parties before
the Commissioner and incorporated in the Paper Book.
It seems to
us that the only point for decision lies within a ve1y narrow compass.
The short point to be decided is whether at the time when the appellant was consuming the high speed diesel oil and petrol for its own
purposes, was it doing so as owner of these articles or merely as an
agent of Caltex Company ? In other words, if it is held that as a
result of the agreement between Caltex and the appellant and
the
transactions following thereupon the title to the diesel or petrol passed
to the appellant by the delivery of these articles, then from that date
the appel.lant became owner of these articles and was entitled to use
them as he liked, because he had already pa'd the price of the diesel
and petrol received by it.
If this be the position, then it is manifestly
clear that the user by the appellant for its own purposes may not
amount to a sale which had already taken place at a point of time
when the goods were delivered by the Caltex Company to the appeJ.
lant. On the other hand, if it is held that the appellant was a mere
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BHOPAL SUGAR INDUSTRIES LTD. v. S.T.O. (Fazal Ali,!.) 581
agent under the agreement and was selling the articles on behalf of
its principal-the Cal!ex Company-then any user of these articles or
properties may amount to a sale so as to be exig.ble to sales tax. We
may add that even then it was contended for the appellant that it
would not amount to sale, but it did not press his contention later.
The question, therefore, will have 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 documents and the· surrounding circumstances and having regard to the course of. dealings
between the parties.
In all the Sales Tax statutes as also the definition of "sale" in the Act in this case, the definition given in the Sale
of Goods Act has been bodily lifted from that Ac~ and inserted in the
Tax Statutes. In the instant case under the Madhya Pradesh Sales of
Motor Spirit Taxation Act, 1957, "sale" is defined thus :
" "sale" with all its grammatical
variations and cognate
expressions means transfer of motor spirit for cash or deferred payment or for other valuable consideration and includes
transfer of motor spirit by a society or club or any association to its members, but does not include a mortgage by-
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pothecation, charge or pledge;
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Explanation I.-Consumption of motor
spirit by a dealer
himself or on his behalf shall be deemed to be a "sale";
Explanation II.-A sale of motor spirit deemed to be a sale
inside the State within the meaning of sub-section (2) Of
section 4 of the Central Sales Tax Act, 1956 (74 of 1956),
shall also be deemed to be sale inside the State for the purposes of this clause;"
Thus it would appear that in order to satisfy the conditions of "sale"
under the definition of the Act, the following
conditions must
be
satisfied :
E
(i) that there should be a transfer of motor spirit from
the seller to the buyer;
•·
(ii) that the transfer must be for valuable consideration
which may be either cash or deferred payment; and
(iii) that the transfer must not be in the nature of a mortgage, hypothecation, charge or pledge.
Under Explanation I, consumption of motor spirit by a dealer himself
or on his behalf shall be deeme.d to be a sale.
But this Explanation
has already been held to be ultra vires by this Court in the previous
Bhopal Sugar Industries Ltd's case.
Thus the essence of the matter
is that in a contract of sale, title to the property passes on to the buyer
011 delivery of the goods for a price paid or promised. Once this happens the buyer becomes the owner of the property and the seller has no
vestige of title left in the property.
The concept of a sale has, however, undergone a revolutionary change, having regard to the complexities of the modem times and tlm expanding needs of the society,
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582
SUPREME COURT .REPORTS
[1977] 3 s.c.R.
which has made a departure from the doctrine of laissez faire by including a transaction within the fold of a sale even though the seller
may by virtue of an agreement impose a number of restrictions on the
buyer, e.g. fixation of price, submission of accounts, selling in a particular area or territory and so on.
These restrictions per se would not
convert a contract of sale into one of agency, because in spite of these
restrictions the transaction would still be a sale and subject to all the
incidents of a sale.
A contract of agency, however, differs essentially
from a contract of sale inasmuch as an agent after taking delivery
of
the property does not sell it as his own property but sells the same
as the property of the principal and under his mstructions and directions.
Furthermore, since the agent is not the owner of the
goods, if any Joss i.9 suffered by the agent he is to be indenmified by
the prir.cipai. This is yet another dominant factor which distinguishes
an agent from a buyer-pure and simple.
In Halsbury's Laws of
England, Vol. l, 4th Edn., in para 807 at p. 485, the following observations are made :
"The relation of principal and agent raises by implication a
contract on the part of the principal to reimburse the agent
in respect of all expenses, and to indemnify him against all
liabilities, incurred in the reasonable performance
of the
agency, provided that such implication is not excluded by the
express terms of the contract between them, and provided
that such expenses and liabilities are in fact occasioned by his
employment."
We have mentioned this fact, particularly because under the agreement
between the Caltex Company and the appellant the Joss sustained by
the buyer has to be borne by it after delivery of the goods and the seller
is not responsible for the same.
Such a special arrangem.ent between
the parties is a factor which taken along with other circumstances points
towards the agreement being one of sale.
It is well settled that while interpreting the terms of the agreement,
the Court has to look
to the substance rather than the form of it.
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.
Thus the mere formal description of a person as an agent or buyer is
not conclusive, unless the context shows that the parties clearly intended to treat a buyer as a buyer and not as an agent.
Learnl>.d. coonsel for the appellant relied on several circumstances to show that on a
proper construction of the agreement it could no~ but be he!~ .to be
a contract of sale.
Learned counsel strongly relied on a dec1s1on· of
this Court in Sri Tirumala Venkateswara Timber and Bamboo Firm
v. Commercial Tax Officer, Rajahmundry,(') where this Court held
the transaction to be a sale in almost similar circumstances. Speaking for the Court, Ramaswami; T, observed as follows:
(I) 21 S.T.C. 313, 316
\
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BHOPAL SUGAR INDUSTRIES LTD. v. s.r.o. (Fazal Ali, !.) 583
"As a matter of law there is a distinction between a contract. of sale and a contract of agency by which the agent
is authorised to sell or buy on behalf of the princ~pal. The
c>Seuce of a contract of sale is the transfer of tJ.lle tu the
gco<b for a price paid or promised to be paid. The transferee in such a case is liable to the transferor as a debtor
for the price to be paid and not as agent for the proceeds of
the sale.
The essence of agency to sell is the delivery of
the goods to a person who is to sell them, not as his own
property but as the property of the principal who continues
to be the owner of the goods and will therefore be. liable to
account for the sale proceeds."
It is clear from the observations made by this Court that the
true
relationship of the parties in such a case has to be gathered from the
nature of the contract, its terms and conditions, and the terminology
used by the parties is not decisive of the said relatiorn;hip.
This
Court relied on a decision in W. T. Lamb and Sons v. Goring Brick
Company Ltd. (1) where despite the fact that the buyer was designated
as sol" sd\ing agent, the Court held that it was a contract of sale.
Lord Scrutton, with whom other Lords agreed, observed as follows :
"Now it is well
known that in certain trades
the word
"agent" is often used without any reference to the law of
principal and agent.
The motor trade offers an obvious
example, where persons described as "agents" are not agents
in respect of any principal, but are purchasers who buy from
manufacturers and sell independently of them; and many
difficulties have arisen from this habit of describing a purchaser, sometimes a purchaser upon terms, as an agent."
In a earlier decision of this Court in Gordon Woodroffe & Co. v.
Sheikh M. A. Majid & Co. (2) it was observed thus :
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"The essence of sale is the transfer of the title to the goods
for price paid or to be paid.
The transferee in such case
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becomes liable to the transferor of the goods as a debtor for
the price to be paid and not as agent for the proceeds of the
sale.
On the other hand, the essence of agency to sell is
the delivery of the goods to a person whO is to sell them,
not as his. own property but as the property of the principal
who continues to be the owner of the goods and who is
therefore liable to account for the proceeds."
G
The Bombay High Court in Daruvala Bros (P) Lta., v. Co1r.missiotier of Income-tax (Central) Bombay(')
had, in almost similar
facts, held that even though there were restrictions on the assessee
the agreement being one of distribution was to be treated 1s a contract
of sale and not an agreement of agency. It would thus appear that
(I) CR. [1932] l K.R.D. 710, 717.
H
(2) [1966] Supp. S.C.R. I, J-4.
(J) 80 l.T.R. 213
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SUPREME COURT REPORTS
[!977] 3 S.C.R.
even if a party is described as agent in the agreement he may not be
an agent bul a buyer though described as an agent.
h1 fact we feel
that there may be agreements which may contain some elements of
agency but may be contracts of sale in other respects.
Learned counsel for the respondent then relied on the decision in
Foley v. Classique Coaches Ltd. (1)
This authority does not appear
to be of any assistance to the respondent because in that case the
court came to a finding of fa~t that there was no concluded contract at
all and the agreement was merely an executory one and, therefore,
the question of determining the relationship between the parties did
not naturally arise.
Similarly reliance was placed on Michelin Tyre Company Ltd. v.
Macfarlane (Glasgow) Ltd. (in
Liquidation).(2)
Here also the
question was decided on the peculiar terms of the agreement in question and this authority cannot be called into aid for the purpose of
deciding the present case.
Learned counsel for the respondent also relied on Financings Ltd.
v. Stimson(•) but the facts in the aforesaid case appear to be quite
different from the facts of the present case.
Strong relianet was also placed by Mr. Panjwani counsel for
the respondent on Willcox & Gibbs Sewing Machine Companv v. Daniel
S. Ewing,(') where the Court observed as follows :
"And it is agreed and understood that this appointment or.
agency is not saleable or transferable by second party without
obtaining the written consent of first party, but such consent
is to be given providing the purchaser or other person is
acceptable to said first party."
"There was some discussion at the bar as to whether Ewing
was, strictly, an agent of the company.
We think he was.
He was none the less an agent because of his appointment
as "exclusive vendor" of the defendant's machines within a
particular territory, or because of the peculiar previleges
granted to or the peculiar restrictions imposed upon hlin."
It seems to us that the law on the subject has been state:l by the Court
in a different context and, therefore, this case does not appear to us to
be of any assistance in determining the question at issue in the instant
case.
The Court in the aforesaid case had inferred agency from
the mere fact that under the agreement the sale was to operate in a
limited t~rritory.
This by itself, in our opinion, is not sufficient to
lead to the inference that the agreement was one of agency.
rt is
(1) [1934] 2 K.B.D. l.
(2) [1917] 2 Scots. L.T. 205.
<3) [1962] 3 All E.R. 386.
(4)
35 U.S. Law. Ed .. 882,884.
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BHOPAL SUGAR INDUSTRIES LTD. v. S.T.0. (Fazal Ali, J.) 585
always open to the buyer to purchase goods for a limited purpose and
within the field of that limited purpose the buyer has absolute title
to the property once it is delivered to him by the seller.
A
Learned counsel for the respondent then relied on a decision of
the Keralai High Court in Goverdhan Hathibhai & Co. v. Appellate
;Assistant Commissioner of Agricultural lllcome-tax and Sales Tax,
Trivandrum,(').
But that decision is contrary
to
the principles
B
enunciated
by
this
Court
in Sri
Tirumala
Venkaeswara
Timber and Bamboo Firm's case (supra) and Gordon Woodroffe &
Company's case (Supra).
Moreover, as pointed out by the Kerala
High Court in that case there were special terms and stipulations in
the contract which persuaded the Court to hold that it was a contract
of agency. We would, therefore, like to confine the ratio of that case
to the peculiar facts of that case.
Further, it appears that while the
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Kerala High Court had expressly dissented from a decision of the Palna
High Court in Rohtas Industries Ltd. v. State of Bihar(2 ) and did
not accept the propositions laid down by the said Court, this Court
had affirmed the aforesaid Patna High Court decision in
Rohtas
Industries Ltd. v. State of Bihar(3 ) where it was observed thus :
"We therefore agree with the view of the High Court that
clause 24 does not qualify the legal effect of the other imD
portant clauses of the agreement, and that the cement delivered, despatched or consigned by the manufacturing companies to the Marketing Company or to its
orders or in
accordance with its directions was sold by the manufacturing companies to the Marketing Company ...... "
In view of the observations of this Court, therefore, the Kerala High
E
Court decision referred to above must be held to have been impliedly
overruled.
Having discussed the law on tl1e subject, we shall now analyse the
agreement in the present case and interpret the same m accordance
with the principles laid down by the various authorities referred to
above.
To begin with, clauses 1 and 2 express in absolutely catei:orical terms that the nature of the agreement is to sell the property
in question and nothing else.
Clause 2 runs thus :
"The Company shall sell to the dealer and the dealer shall
buy from the Company the said products at the prices preestablished by the Company therefor and which are in effect
on the date on which the Diesel Oil is despatched/or delivered by the Company."
Clause 2 expressly states that Hispeedol was to be sold and the dealer
was buying tl1e property from the Company at prices to be fixed by
the Company.
The terms "buying" and "selling" have not been used
by way of a routine or formal description of the status of the parties
(1) 12 S.T.C. 464,
(21 9 S.T.C. 248.
(3) 12 S.T.C. 615, 622.
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SUPREME COURT REPORTS
( 1977] 3 S.C.R.
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but appear to us to form an integral part of the contract clearly exhibiting an intention of the nature of transaction which the parties intc:ided this document to be, namely, that it is a contract for sale and
nuthmg eise. We must remember that the agreement in question is
a contract for distribution of Hispeedol produced by tb Caltex Com-
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pany which has a monopoly for producing a particular type or oil
which it sells. A common feature of any distribution agreement is that
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the seller i:J.sists on a particular price at which the property is to be
sold and impose certain restrictions in order to protect his goodwill
and ensure the quality of his goods to be distributed through sljle.
The chart filed by the appellant at p. 191 of the Paper Bo0k would
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clearly show that the appellant paid the price of the bulk supplies
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almost within a month of the date of delivery of the goods.
This
chart runs thus :
"A. H. Bhiwandiwalla & Co.
(Bombay)
Pnvate Ltd.,
Managing Agents,
The Bhopal Sugar Industries Ltd.,
Sehore, Cash Debit voucher
No.
2011,
dt.
1-7-1958.
"Please pay to M/s. Caltex (India) Ltd., Account : Petrol
D
Diesel Oil & lubricants.
E
In full payment of the following bills
No.19232 dt. 9-4-58 for 1000 Gs. petrol
No. 19283 dt. 8-5-58 for 1000 Gs. petrol
No. 19321dt.29-5-58 for 1000 Gs. petrol
No.17586 dt.1-5·58 for 1000 Gs. Hispe<dol
No. 17598 dt. 7-5-58 for 1000 Gs.
No.17610 dt.14·5-58 for 1000 Gs.
No.17621 dt. !8-5-58 for 860 Gs.
"
R•1pees fifteen thousand six hundred ten only.
Rs. 2920-CO
Rs. 2920-00
Rs. 2920-00
Rs.1770-CO
Rs.1770·00
Rs.1770-00
Rs. 1540--00
Rs.·llp.
8760-00
6850-00
15610·00
For the Bhopal Sugar Industries Ltd.
Sd/- Illegible
Manager. "
This chart also reveals a crucial fact, namely, that the supply of the
products by the Company was made to the appellant not on consignment basis but by way of outright sale.
It appears from the documents produced by the appellant before the Commissioner tbat
on
.G · inquiries made from the seller,. namely, the Caltex Company, they
confirmed the fact that the goods were sent to the buyer on the basis
of outright sale. In this connection, the relevant portion of the Jetter
read thus ;
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"We refer to the discussion your Mr. Mody had this forenoon with our M/s. G. H. Sani and M. R. Pata1tlrnr ..... .
In this connection we would like to confirm as under :
"1. Since. the inception of your dealership, clause No. 4 of
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BHOPAL SUGAR. INDUSTRIES LTD. v. S.T.O. (Fazal Ali, /.) 587
our Standard Petrol Dealer Agreement does not apply to
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you.
2. Supplies of Petroleum Products ex Bombay or ex our
Depots in Madhya Pradesh have been made to you on the
basis of outright sale."
This letter also shows that clause 4 of the Standard Petrol Dealer
Agreement did not apply to the appellant.
Similarly another letter
at P. 167 of the Paper Book written by the Manager of the appellant
to the Commissioner of Sales Tax clarified the position that the
appellant had purchased the gocds on outright basis.
The relevant
portion of this letter may be extracted thus :
"Mis Caltex (India) Ltd., never supplied goods i.e. petrol
& Hispeedol on consigrunent basis.
We had always purchased the goods from them on out-right purchases against
our orders placed with them from time to time.
Sample
copies of our correspondence relating to placement of orders
in respect of petrol & hispeedol are enclosed herewith for
your perusal."
The appellant had filed detailed correspondence to prove the facts clarified before the Commissioner. This aspect of the matter was turt11er
reiterated by the appellant in his letter to the Commissioner dated
November 7, 1969, the relevant portion of which may be extracted as
follows :
"M/s Caltex (India) Ltd. supplied us petrol & hispeedol
against our orders placed with them from time to time and
they billed us immediately thereafter at the bulk rates prevailing from time to time ....... Payments were also made
to M/s. Caltex (India) Ltd. on outright basis immediately
after receipt of the goods. . .....
All books of account, all files containing orders, bills,
payment vouchers and correspondence are produced before
you for your verification."
This letter further shows that ·all the vouchers, correspondence etc.
bad been produced by the appellant in proof of the recitals mentioned
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in the letter. It is, therefore, clear that the moment the appellant
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received the supplies of Hispeedo! from the seller, the Hispeedol
became the property of the appellant and the appellant was absolutely
free to sell the Hispeedol and petrol to any one it liked at the prices
fixed within the territory specified in the agreement.
Thus the title to
the property passed to the appellant the moment it took delivery of
the same. It is, therefore, manifest that having taken delivery of the
property if the appellant was using it for its own consumption it was
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using its own property in which the Company had no title at all and
such a user therefore could not, by any stretch of imagination, be treated as a sale.
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588
SUPREME COURT REPORTS
[ 1977] 3 s.c.R.
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Another very important circumstance which clearly shows that the
contract was one of sale and not of agency is the fact that after having
taken delivery of the petrol and Hispeedol the appellant sold the same
to its various customers, not even mentioning that the property oelong- ·
ed to Caltex Company but issued cash memos in its own name which
clearly indicates that after taking delivery of the property the appell~.nt
became the absolute owner thereof and represented itself to be the
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owner of the property and sold it not as the property of the Company
but as its own property.
This fact is clearly proved' by the cash memos
and credit vouchers produced by the appellant at pp. 195-197 of the
Paper Book. The cash memo describes the Bhopal Sugar Industries
Ltd. as the owner of the goods and so does the credit voucher.
This,
therefore, conclusively shows that the agreement could not have been
an agreement of agency because the essential distinction between an
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agreement of sale and agreement of agency is that in the former case
the property is sold by the seller as his own property and in the latter
case the property is sold by the agent not as his own property but as
the property of his principal and on his behalf.
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Another important circumstance which indicates that the goods
were sold to the appellant is that the appellant in his letters produced
on further queries made by the Commissioner of sales Tax made a
clear statement that the appellant had borne the losses due to leakage,
driage, evaporation etc. during the course of storage at the pumps of
the appellant and the seller Caltex Company did. not. reimburse the
appellant for such losses.
The relevant portion of this letter may be
extracted thus :
"As we had purchased petrol & hispeedol on out-right
purchase and sale basis from M/s Caltex (India) Ltd., we
borne the entire losses arising out of entire expenses or handling at our receiving point. We also borne the losses due to
leakages, driage and driage and/or evaporation during the
course of storage at our pumps. M/s Caltex (India) Ltd.,
did not reimburse us for any loss."
If the appellant would have been agent of the Caltex then under the
law of agency the agent had an indefeasible right to be reimbursed @r
indemnified by the principal for the losses caused.
But as the appellant bore the losses personally, this clearly indicates that the properties
after being sold to it were its absolute properties and if any losses
occurred they were borne by the appellant as owner and not by the
seller.
Another important condition in the agreement was clause 23 at
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p. 130 of the Paper Book which runs thus :
"The dealer shall at any time, upon request of the Company make from his stocks, deliveries of reasonable quantities
of said products for account of the Company, to consumers
at such points wi.thin t)ie territ?ry as _the Compa~y n;iay designate. In cons1derat10n of his makmg such dehvenes, the
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BHOPAL SUGAR INDUSTIUES LTD. v. s.T.O. (Fazal Ali, ].) 589
dealer shall be reimbursed in full for all transportation expenses, and receive in addition thereto, such allowances for
handling as may then currently be in effect under this agreement"
Under this clause the appellant was required to deliver reasonable
quantities of products at the request of the Company to consumers
designated by the Company at such points within the territory as may
be specified. In consideration of complying with the request, the seller
Company agreed to reimburse the appellant in full for the supplies
and the appellant was also entitled to be paid transportati()n expenses
and handling allowances as nmy have been incurred by ii.
This is
another decisive factor which negatives the theory that the agreement
could be one of agency.
Indeed such a stipulation in the agreement
is wholly inconsistent with the position of the appellant lfeing an agent
for in that case th~re was absolutely no scope for such a stipulation
and the seller Company as a principal of the agent could have instructed it to supply the goods or petrol to designated customers am! there
was no question of the agent being reimbursed, because the property
supplied belonged to the principal and was delivered to certain persons
on the instructions of the principa,l.
This cfause, therefore,
is
yet
another important factor which shows that the agreement was intended
to be a contract of sale rather than a contract of agency.
Furthermore, the agreement contains a clear and
unequivocal
declaration by the seller Company that the status of the appellant
would not be that of an agent.
In this connection, clause 15 of the
agreement runs thus :
"Nothing in this agreement contained shall in any way
operate by implication or otherwise to constitute the dealer
as agent of the Company in any respect and for any purpose
.whatsoever, and the dealer shall have no right or authority
to assume or create any obligation of any kind express or
implied on behalf of the Company in any other respect whatsoever. "
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This clear declaration on the part of the parties leaves no room for
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doubt that the agreement was intended to be a contract for sale and
that the appellant was not only not regarded as an agent but was
expressly excluded from the category of an agent.
The cumulative effect of the circumstances mentioned above leads
to the inescapable conclusion that the Hispeedol had been sold to
the appellant and not held by it merely as an agent of the Caltex
Company.
The petrol agreement also which has been placed before
us contains similar stipulations and it was not disputed by counsel for
the respondent that if the" Hispeedol Agreement is held to be a contract of sale, then the same would have to be said of the Petrol Agreement also.
Thus the principles which would rnake the contract of
the purchase of Hispeedol a contract of sale would apply
mutati~
mu!andis to
the Petrol Agreement also.
Learned counsel for the respondent, as also the Commissioner, have
relied on certain stipulations in the agreement which show that the
11-502 SC!/77
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590
SUPREME COURT REPORTS
(1977) 3 S.C.R.
agreem~nt was one of agency.
The Jirst circumstance relied in this
connection. wa~ that under. clause 12 _of the agreement, the appellant
was to mamtam sale, ser.v1ce and other record as may be considered
necessary and was to furmsh the Company when called upon stai~ments
of sales, financial and other matters as and when required by the
Company.
Clause 12 runs thus :
"The dealer shall maintain sales, service and other record
as n_iay be considered necessary by the C~mpany and shall
furmsh the Company when called upon with all such sales
financial ~nd other statements as may be required by and i~
forms satisfactory to the Company. "
In our opinion this clause does not at all conclusiyeJy show that the
appellant was an agent of the C"mpany.
The obiect of inserting this
clause in the agreement appears to M that during the term of the
agreement the appellant undertook to maintain proper sales, service
and other record so that the Company's reputation may not suffer and
if any statement regarding the sales or other matter were rejjuired by
the Company, they were not required because the appellant was the
agent of the Company but it was because the Company wanted to
keep itself fully informed of the proper conduct of the business by
the appellant in order to maintain its goodwill. It is manifest that if
during the period of the agreement there were serious complaints
against the appellant regarding the misuse of the privileges given to
it under the agreement, the Company could under the terms of the
agreement terminate the agreement so as to save its reputation. Read
as a whole, this stipulation does not amount to make the appellant
liable to render regular accounts to the Company inasmuch as the
statemenfi': called for were required only for a very limiled purpose,
viz., to prevent the ai;>pellant from misusing his privileges and thereby
jeopardising or harmmg the reputation of the Company. In these
circumstances, therefore, the argument based on this clause appears to
be of no assistance to the counsel for the respondent.
Oause 8 of the agreement clearly shows that the appellant had
been loaned properties belonging to the Company like petrol pumps
and their accessories etc. and it was in respect of these properties which
had been given to the dealer for working the petrol pumps that the
statements of account were called for from the appellant.
This
appears to be the modus operandi adopted by the seller Company in
respect of all its distributors.
There is no stipulation in the agreement
which requires or enjoins on the appellant to submit accounts of the
Hispeedol or petrol which he may have sold to various customers,
after having taken delivery of the same from the Company.
In these
circumstances, therefore, this argument of the learned counsel for the
respondent mnst be overruled.
Another circumstance relied upon by the respondent was the fact
that the appellant was nnder the terms of the agreement to sell lhe
goods at a price fixed and not higher or lower. than
~ha~. yve have
already indicated that when a Company enters mto a d1stnb:ition agreement it always fixes a particular price in order to protect its gooclwJll
BHOPAL SUGAR INDUSTRIES LTD. v. S.T.O. (Fazal Ali, J.) 591
and in order to control the market. Such fixation of the price by itself would not be a restriction which would take away the freedom of
contract of ·sale.
Such a stipulation is found in almost all the agreements entered into between the monopolist Companies and their distributors. The respondent would not, therefore.