State Taxation Tribunal - Tamil Nadu
State Of Tamil Nadu vs Parikh Metal Corporation on 24 February, 1999
JUDGMENT
P. Muthusamy, J. (Judicial Member)
1. These tax revision cases have been filed by the Revenue against the common order of the Sales Tax Appellate Tribunal (Additional Bench, Madras City) T.A. Nos. 99 to 101 of 1986 dated October 31, 1986 in respect of the (disputed) assessment on a turnover of Rs. 19,41,609 at 5 per cent and consequential levy of surcharge, additional surcharge and additional sales tax.
2. Tvl. Parikh Metal Corporation, dealers and agents in non-ferrous metals, etc., while reporting total and taxable turnover for the assessment year 1984-85 claimed exemption for the turnover of Rs. 19,41,608.61 by claiming themselves as procurement agent of Universal Radiators Limited, Coimbatore, under an agreement dated June 20, 1984. Under the terms and conditions of the said agreement it is claimed by the assessee that the firm purchased brass sheets from Hindustan Copper Limited, Madras and supplied them to Universal Radiators Limited, Coimbatore, as procurement agent and in that process for the services rendered as per the agreement the firm got commission of 5.5 per cent and besides the same it collected incidental charges such as cooly paid, freight charges from stockyard of Hindustan Copper Limited to the godown of the assessee and the said amounts were also reimbursed from Universal Radiators Limited, Coimbatore. To put it in a nutshell under the terms and conditions of the agreement Tvl. Parikh Metal Corporation, Madras, was only a procurement agent of Universal Radiators Limited, Coimbatore and supplied the goods and hence claimed the abovesaid exemption on a turnover of Rs. 19,41,608.61 on the value of the goods supplied to Universal Radiators Limited. But the assessing authority namely, Commercial Tax Officer, Peddunaickenpet, South Circle, Madras-1, disagreed the claim of the assessee that he was a procurement agent and held that the assessee is a commission agent engaged in the sale or purchase or in the taxable event under the Act, is a dealer as per Section 2(g) of the Tamil Nadu General Sales Tax Act, 1959 and hence the purchases as well as sales effected by him is liable to tax, consequently, levy of tax, surcharge, additional surcharge and additional sales tax for a turnover of Rs. 19,41,608.61 in respect of the transactions in between the assessee and the Coimbatore buyer. Aggrieved by the said order the assessee preferred first appeal before the Appellate Assistant Commissioner, Madras, who confirmed the order of the assessing authority in toto and dismissed the appeal. The second appeal preferred by the assessee before the Appellate Tribunal, Madras, was decided otherwise and held that the assessee was an agent for commission only for Universal Radiators Limited, Coimbatore, and held that the assessee is entitled for exemption for a turnover of Rs. 19,41,609 in respect of the goods supplied to Universal Radiators Limited, Coimbatore, for the assessment year 1984-85 and thereby allowed the appeal by setting aside the order of the Appellate Assistant Commissioner and consequently set aside the surcharge, additional surcharge and additional sales tax.
3. The revenue thought that it is a fit case to prefer a revision against those appeals and preferred revision petitions before the High Court of Judicature at Madras, and these review petitions have been transferred to this file of this Special Tribunal under Section 19 of the Tamil Nadu Taxation Special Tribunal Act, 1992.
4. In the grounds of appeal the Revenue claimed that the cumulative effect of the various clauses in the agreement in between the assessee and Universal Radiators Limited, Coimbatore, would be construed that the assessee is only a dealer as defined in Section 2(g) of the Tamil Nadu General Sales Tax Act, 1959, as the assessee purchased the goods in their own name from Hindustan Copper Limited and stored in the godown and subsequently sold them to the ultimate buyer at Coimbatore. It is further stated that the purchases from Hindustan Copper Limited effected were only in its name under the invoices made and hence there was a first transaction in between the assessee and Hindustan Copper Limited, Madras, thereby the second transaction by the assessee to the Universal Radiators Limited, Coimbatore, was a sale. Even as per the clauses of the agreement the price money, freight charges, etc., were paid by Universal Radiators Limited, Coimbatore, to the assessee only after getting delivery of the goods, and hence the second transaction has to be also eligible to tax (multi-point tax at 5 per cent). So it is claimed by the Revenue that the Tribunal has erred in holding that the assessee is an agent only for commission. The very same points were urged before us during the arguments.
5. Now the point for consideration is whether the common order of the Appellate Tribunal by upholding that the turnover of Rs. 19,41,609 is exempted from tax, surcharge, additional sales tax is in accordance with the law.
6. The genuineness of the agreement dated June 20, 1984, in between Universal Radiators Limited, Coimbatore and Parikh Metal Corporation, Mint Street, Madras, is not in dispute. In such circumstances it is claimed by Parikh Metal Corporation, Madras, that it is only a procurement agent of Universal Radiators Limited, Coimbatore and it is not a dealer as defined under Section 2(g) of the Tamil Nadu.General Sales Tax Act, 1959. Hereinafter, Parikh Metal Corporation, Madras, will be called as "assessee", Universal Radiators Limited, Coimbatore, will be called as "ultimate buyer" and Hindustan Copper Limited will be called as "seller" for the purpose of discussion. When the assessee is claiming itself only as a procurement agent and not a dealer as defined in the Act, the burden is only upon the assessee that it is not a dealer by establishing facts within his knowledge to that effect. Fortunately, in this case the written agreement dated June 20, 1984 is available to show the relationship between the principal and agent. By going through the various clauses in the agreement it is found that the cumulative effect of the agreement could be that the assessee is a dealer as defined under Section 2(g) of the Tamil Nadu General Sales Tax Act, 1959, Section 2(g) of the Tamil Nadu General Sales Tax Act, 1959, reads as follows :
"Section 2(g) : 'dealer' means any person who carries on the business of buying, selling, supplying or distributing goods, directly or otherwise, whether for cash, or for deferred payment, or for commission, remuneration or other valuable consideration, and includes,--
(i) to (ii)............
(iii) a factor, a broker, a commission agent or arhati, a del credere agent or an auctioneer, or any other mercantile agent by whatever name called, and whether of the same description as hereinbefore or not, who carries on the business of buying, selling, supplying or distributing goods on behalf of any principal, or through whom the goods are bought, sold, supplied or distributed ;"
The above definition 2(g)(iii) came into effect from June 15, 1992, and previously the Section 2(g)(iii) was as follows :
"a commission agent, a broker or a 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 ;".
Whether the assessee as an agent of the ultimate buyer could be construed as a dealer under the Tamil Nadu General Sales Tax Act with reference to the clauses mentioned in the agreement and the relative materials available such as vouchers, etc., produced by the assessee in this case.
7. As already stated above the genuineness of the agreement dated June 20, 1984 is not in dispute. As per Clause 1, the assessee is only a procurement agent on non-exclusive basis which means that the assessee is not the sole agent of the ultimate buyer. As per the Clause 3, it is open to the assessee to undertake procurement agency for any third party for the "said goods" on same or other terms without reference to the ultimate buyer. So unless the right of disposal of goods is with the assessee, there is no possibility of dealing with other parties in the same nature of transactions. As per the clauses 4 and 5, the ultimate buyer would periodically intimate their requirements for their said goods and also authorise the assessee for purchase of the said goods at the most advantageous price with reference to the market rate prevailing at that time which of course by intimating periodically about the prevailing market rates and conditions to the ultimate buyer. So as per clauses 4 and 5, by considering the prevailing market rates and conditions of the said goods the assessee could fix the most advantageous price for the said goods which means the discretion to fix the price of the goods was with the assessee only and not with the ultimate buyer by taking into consideration of the prevailing market rates and conditions. It is also admitted fact that neither the ultimate buyer, and the seller knew each other nor there is any privity of contract in between themselves. Of course this could be based upon the Clause 6 of the agreement wherein it is stated that the assessee could even disclose or not disclose identity of the ultimate buyer in its dealings with third parties herein the seller for supply of the said goods. Even in Clause 7, it is stated that for the ultimate buyer the assessee would take all responsibility in safeguarding, handling, collection, storage, transport and delivery of goods to the ultimate buyer. So here that assessee had not passed on the goods from the seller to the ultimate buyer but got possession of the goods after his purchase from his own fund and sent the goods after keeping it in its godown and after paying the price to the seller by way of cheques for each transaction. As per clause 8, the said goods had been supplied to the ultimate buyer by way of consignment by the assessee and the ultimate buyer had reimbursed the expenses at actual as detailed in Clause 7. Clause 10 would show that the assessee would render statement of accounts for each transaction for the purchase of goods on the account of the ultimate buyer and the assessee should maintain account books. Even Clause 11 would show that all the tax paid would be reimbursed to the assessee by the ultimate buyer. Clause 12 would state that the assessee is entitled for remuneration of 5.5 per cent of the cost of purchase of the said goods. Clause 13 would state that the ultimate buyer would endeavour to provide funds to the assessee, but in this case as per the finding of the lower authorities not even for a single transaction the ultimate buyer paid money in advance by the purchases effected by the assessee, and on the other hand it is found as per the finding of the lower authorities that the ultimate buyer paid the money, freight charges, etc., only after got delivery of the goods from the assessee in all transactions.
8. It is also not the case of the assessee that there is any agreement in between the ultimate buyer and the seller, and on the other hand as already stated above, ultimate buyer and seller are unknown to each other and there is no privity of contract between them. In all transactions that is the purchases effected by the assessee from the seller as detailed in the order of the Appellate Tribunal, paras 11 and 12, the assesses had, purchased the brass sheets from the seller who in turn passed on the goods to the assessee's godown only and not to the ultimate buyer, and further only the assessee issued cheques for each and every transactions to Hindustan Copper Limited, and thereafter only the assessee sent the goods to Coimbatore and thereby after the first transaction was completed the second transaction commenced by way of sale. Further even as per the finding of the assessing authority and the first appellate authority it could be seen that the assessee purchased the goods from the seller with his own capital and kept it in the godown and thereafter only in the subsequent days despatched the same to the ultimate buyer in Coimbatore who paid the sale price, etc., only after the receipt of the goods at Coimbatore which was nothing but sale by the assessee to the ultimate buyer. So it is the specific finding of the first appellate authority that the appellant utilised his own fund for purchase of goods namely the brass sheets from the seller and so also the first appellate authority in an emphatic manner has clearly stated that there is not even a single instance of funds provided for by the said ultimate buyers, namely, Universal Radiators Ltd., Coimbatore. It is also significant to point out that all the invoices are only in the name of the assessee and only after receipt of sale invoices from the seller the assessee affixed the rubber stamp in the bills indicating an amount to Universal Radiators Ltd., Coimbatore. So it is obvious that the seller never knew of any sale to the ultimate buyer or no connection whatsoever with the same, and on the other hand the seller was not concerned with any transaction in between the assessee and ultimate buyer as the said transaction is a separate and second transaction by way of sale by the assessee to the ultimate buyer. Already stated above as per clauses 1 to 5, the assessee is not the sole agent of the ultimate buyer and the assessee could as well enter into any transactions to purchase and sell the said goods to third parties like ultimate buyer and others. So it is obvious that the assessee not only had the custody of the goods purchased from the seller but also had the right of the disposal of the goods either to the ultimate buyer or to any other third party and in this case the assessee sold the goods to ultimate buyer also which is the second transaction by the assessee.
9. It is also specific finding of the first appellate authority, that the assessee purchased goods on the account of ultimate buyer and also for his own and kept it in the godown, and for both the lots the assessee paid out of his own fund by way of cheques and the assessee could dispose of the goods purchased to anyone including to ultimate buyer. So as per the clauses of the agreement and as per the materials placed, it is clear that the assessee purchased goods by fixing the prices considering the prevailing market rates and conditions out of his own funds and the seller also passed on the goods only to the godown of the assessee and not to the ultimate buyer, and thereafter only the assessee sent those goods by way of sale from his godown to the ultimate buyer in Coimbatore who paid the prices and other expenses to the assessee only after got delivery of the goods. So, it is obvious that there are two transactions namely (1) the sale by the seller to the assessee or purchases by the assessee from the seller, (2) the sale by the assessee to the ultimate buyer which is to be taxed (multi-point) as the assessee was having right of disposal of the goods. It is not as if the assessee connected the buyer and seller by acting as a clearing agent, and on the other hand at the cost of repetition we have to state that out of his own fund by fixing the prices considering the market rates and conditions purchased goods from the seller and got delivery of the goods in its godown and thereafter only passed on or sold the goods to the ultimate buyer, and after receipt of the goods--the ultimate buyer paid the consideration, i.,, the ultimate buyer paid the price and other expenses only after getting delivery of the goods at Coimbatore. It is pertinent to point out that even while mentioning the 5.5 per cent of the cost of purchase would be paid to the assessee it is stated in Clause 12, the assessee is entitled to a remuneration calculated at 5.5 per cent of the cost of the purchase of the said goods. So even as per Clause 12 of the agreement, it may be a commission of 5.5 per cent in the point of view of the seller but it could be only construed as a profit for the assessee. It is also pertinent to point out that there is no clause to mention that in the event of loss whether the assessee should have the right to indemnify. So there cannot. be any element of procurement agency. Considering all these aspects it could be seen that the assessee not only got delivery of the goods due to the transfer of the property in the goods in his name as per the voucher but also it had the right of the disposal of the goods to the ultimate buyer. So in this case the two trans-actions were only within the State and there is no question of agency of non-resident dealer.
It is also definite finding of the lower authorities that Rule 26(6)(b) has not been complied with by the assessee while giving particulars about the rate, quantity, etc., as detailed thereon.
10. The counsel for the respondent contended that the assessee acted only as a procurement agent without any right of disposal of the goods and hence it is not a dealer as defined under Section 2(g) of the Tamil Nadu General Sales Tax Act, 1959 and in support of his contention he cited a decision Maganbhai v. Chetanlal reported in AIR 1968 Raj 81. In the cited decision it was a suit for ejectment and for arrears of rent arising under contract under Section 231 and hence it was held that the principal could enforce the contract entered into by his agent as the principal was also a party (plaintiff) in the said suit. Here we are concerned whether the agent could come under the definition of "dealer" as defined under Section 2(g) of the Tamil Nadu General Sales Tax Act, 1959 and to find out whether the agent has the right of disposal of the goods. So the facts of the case cited is no way applicable to the facts of this case. The counsel for the appellant in support of the contention cited another decision in Peninsular Traders v. Deputy Commissioner, Sales Tax (Law), Kerala, reported in [1998] 108 STC 575 (SC). In the cited decision the assessee was the sole distributor of the company for the chemicals namely trisodium phosphate manufactured by the said company which entrusted with the agent as a sole agent, and the price was also fixed by the company only from time to time. In the cited case, the title in the unsold chemicals would not pass on to the agent. Here in our case as already stated above, the assessee is not the sole agent and the assessee could purchase goods on the account of the principal as well as for third parties by purchasing goods out of his own funds, and goods were in possession of the assessee by keeping them in the godown of the assessee, and only on subsequent days the assessee passed on the goods or sold to the ultimate buyer to Coimbatore who paid the consideration only after receipt of the goods. So the goods was purchased by the assessee from the seller who passed on to the assessee at its inception and thereafter the said goods was sold to the ultimate buyer or to third parties and thereby the other goods which were not passed on to the ultimate buyer were only with the assessee as an owner. So the facts of the cited case entirely different from the facts of this case and hence not applicable to the facts of this case.
11. In this context, we have to point out that in one another Supreme Court decision in Bagal Kot Cement Co. v. State of Mysore reported in [1976] 37 STC 73, it has been held that the assessee effected the sale as a dealer and therefore liable to pay tax, and while rendering such principle, their Lordships relied upon a Full Bench decision of our Madras High Court in Kandula Radhakrishna Rao v. Province of Madras represented by the Collector of West Godavari, reported in [1952] 3 STC 121 ; AIR 1952 Mad. 718. The relevant portion of the Full Bench decision has been extracted in the Supreme Court decision [1976] 37 STC 73 at pages 76 and 77 as follows :
"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 [1952] 3 STC 121; 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 :
'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."
So the facts and principles laid in the Full Bench decision as well as in the decision of the Supreme Court are squarely applicable to the facts of this case.
12. It is also significant to point out that this Supreme Court decision had not been referred in Peninsular Traders v. Deputy Commissioner, Sales Tax (Law), Kerala [1998] 108 STC 575. Hence considering all these aspects, it is obvious that the assessee is a dealer as defined under Section 2(g) of the Tamil Nadu General Sales Tax Act, 1959 and thereby the second transaction is exigible for tax and not entitled for exemption.
13. Of course we have to point out that the order of the Appellate Tribunal, the clauses embodied in the agreement and the point that the assessee was in possession of the goods and the assessee was having the right of passing of title in the goods had not been considered at all and it merely misguided by relying upon the goods purchased by the assessee and subsequently despatched to the Universal Radiators Ltd., Coimbatore alone were considered on the wrong footing as if the assessee was a sole agent of the ultimate buyer. Perhaps if the decisions reported in [1976] 37 STC 73 (Bagal Kot Cement Co. v. State of Mysore) and the Full Bench decision of the Madras High Court in [1952] 3 STC 121 (Kandula Radhakrishna Rao v. Province of Madras) had been brought to the notice of the Appellate Tribunal, the result would have been otherwise. Bearing all these facts in mind, we could very well interfere with the common order of the Tribunal as it erred in arriving at a conclusion as a procurement agency only, without properly appreciating the clauses in the agreement, but actually as per the available materials the assessee had right to dispose of the goods, arid further there are two transactions out of which the second one is also liable to tax and thereby we could interfere within the findings of the Appellate Tribunal. Hence the order of the Tribunal is hereby set aside and the order of first appellate authority which confirmed the order of the assessing authority is restored. Hence the assessee is liable to pay tax for (second transaction) on a turnover of Rs. 19,41,609 at the rate of 5 per cent (multi-point) and consequently liable to pay surcharge, additional surcharge and additional sales tax as ordered by the first appellate authority. In the result, the tax revision petitions are allowed.
And this Tribunal doth further order that this order on being produced be punctually observed and carried into execution by all concerned.
Issued under my hand and the seal of this Tribunal on the 24th day of February, 1999.