ALWAYE AGENCIES versus DY. COMMISSIONER OF AGRICULTURAL INCOME-TAX AND SALES TAX, ERNAKULAM

Citation: [1988] 3 S.C.R. 879 · Decided: 04-05-1988 · Supreme Court of India · Bench: R.S. PATHAK · Disposal: Dismissed

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Judgment (excerpt)

ALWAYE AGENCIES 
v. 
DY. COMMISSIONER OF AGRICULTURAL INCOME-TAX 
AND SALES TAX, ERNAKULAM 
MAY 4, 1988 
[R.S. PATHAK, CJ, AND M.H. KANIA, J.] 
Kera/a General Sales Tax Act-Whether the assessee appointed as 
distributor by a manufacturing company under an agreement to effect 
sale of its product is an agent under the agreement or a purchaser from 
A 
B 
the company and liable to tax-Under. 
c 
This appeal arose out of a case under the Kerala General Sales 
Tax Act. The assessee firm (assessee) had been appointed as distributor 
by the Travancore Cochin Chemicals Ltd. (the "said company") to 
effect sale of their product under an agreement. In the assessment of the 
assessee firm for the period 1967-68 under the Kerala General Sales D 
Tax Act, final assessment was completed and the turn()ver as reported by 
the assessee was accepted and tax, .levied on that basis. Later, the 
assessing authority alleged that certain transactions in the aforesaid 
period had been wrongly excluded from the turnover reported by the 
assessee in the return and the turnover had es.caped assessment. The 
contention of the assessee that the transactions did not constitute sales E 
by the said company to the assessee was rejected by the Assessing Offi-
cer and it was held that the said turnover was liable to be included in the 
taxable turnover as escaped turnover. An appeal by the assessee to the 
Appellate Assistant Commissioner was dismissed. In second appeal to 
the Tribunal, the Tribunal held that the transactions in question had 
taken place directly between the said company and the consumers and F 
the assessee was merely an agent of the ·company, and allowed the 
appeal. The High Court on revision held that the Tribunal was wrong in 
concluding that the assessee was acting only as an agent in respect oftbe 
said transactions between the said company and the consumers, and 
allowed the Revision Application. The assessee-_irrm appealed to this 
Court hy special leave against the decision of the High Court. 
G 
.. 
Dismissing the appeal, the Court, · 
HELD: Both the parties proceeded on the footing that the t~ans­
acti01_1s in question were effected pursuant to the agreement. sub-clause 
(a) of clause 2 whereof provided that the distributor had the right of.sale . H 
879 
A 
B 
c 
880 
SUPREME COURT REPORTS 
I 1988] 3 S.C.R. 
of the product within the stipulated area. Bulk supplies were effected in 
waggon-load or lorry-load by the said company direct to the consumer 
pursuant to orders booked by the assessee firm. The distributor 
arranged the payment as per the agreement and also took the responsi-
bility to bear entirely the resultant effects and risk from the said direct 
dispatches. It was true that the price at which the goods were to be sold 
to the customers was iixed by the company but that did not lead to the 
conclusion that the assessee acted merely as an agent of the said com-
pany. The mere fact that the manufacturer fixes the sale price by itself 
cannot lead to the conclusion that the distributor is merely an agent. 
Under the agreement, what the distributor got was described as a 
''rebate'' and not "Commission", as is normally expected in an agree-
ment of agency. This is a factor, by no means conclusive, but to a 
certain extent indicative of the relationship between the said company 
and the assessee. More important, the supplies were made to the dis-
tributor against payment-immediate or deferred-as provided in the 
agreement, and even when the goods were destined directly to the 
customer, the distributor had to guarantee to arrange the ·payment, as 
D 
per clause 8. Where there was some time-lag between the sending of the 
goods and the payment, the goods were to Ile insured at the cost of the 
assessee. This circumstance clearly showed that in respect of the goods 
dispatched under orders placed by the distributors, the distributors 
really acted as purchasers of the goods which th~y in turn sold to the 
customers and did not merely act as agents of the said company. In 
E 
respect of the goods in question, despatched through public carriers, 
although the invoices were prepared in the names of the customers of 
the goods and the goods were consigned to the destination through 
public carrier booked to self, the bills were endorsed and delivered to 
the assessee. In the light of the agreement, these circumstances clearly 
F 
showed that in respect of these transactions the property in the goods 
dispatched passed

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