Decided on January 31,1974



SUBRAMONIAN POTI, J. - (1.) THIS revision is at the instance of the Deputy Commissioner of Agricultural Income-tax and Sales Tax, Ernakulam. It is against a decision of the Kerala Sales Tax Appellate Tribunal, holding that the assessee was not liable to pay tax on a turnover of Rs. 1,42,536. 61, which was assessed by the Sales Tax Officer as the tax on escaped turnover for the year 1967-68. The controversy is whether the turnover sought to be assessed relates to sales to the respondents M/s. Alwaye Agencies, Alwaye (referred to as the "distributor" in this judgment), by the Tranvancore-Cochin Chemical Limited. Udyogamandal (referred to as the "company" ). The assessee had been appointed as distributor under an agreement entered into on 11th February, 1967, between the assessee and the company in regard to the sale of sodium hydrosulphite manufactured by the company in the area covered by the Kerala State. It is only the transactions subsequent to 1st September, 1967, that are disputed to be not sales. There is no dispute that the transactions up to that date are not taxable. According to the distributor, no purchase was made from the company of the goods covered by the agreement and supply was made by the company to the consumers direct, the distributor acting only as an agent. That plea did not succeed before the assessing authority or the Appellate Assistant Commissioner. The Sales Tax Appellate Tribunal by a majority, the departmental member dissenting, took the view that the transactions between the distributor and the company are only agency transactions and explanation (5) to section 2 (xxi) of the Kerala General Sales Tax Act, 1963, would not apply to the case. The questions raised in this vision are : " A. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that regarding the transactions impugned, the assessee was acting only as an agent ? B. Is the interpretation of the agreement dated 11th February, 1967, by the Appellate Tribunal correct ? Is not the jural relationship between the assessee and T. C. C. Ltd. , one of vendor and purchaser only ? C. Was the Appellate Tribunal justified in law in holding that the impugned assessment should be set aside for all or any of the reasons alleged ?"
(2.) THE agreement between the parties is produced as annexure A to the petition. This agreement refers to the contracting parties as company and distributor. It is further stated in the preamble to the agreement that the term "distributors" shall "mean and include their successors, heirs, executors, administrators and assigns thereof". Clause 1 of the agreement refers to the appointment of M/s. Alwaye Agencies, Alwaye, as "distributors for the sale of sodium hydrosulphite manufactured by the company" for the area covered by the Kerala State on the terms and conditions mentioned in the agreement. Clause 2 (a) specifies that the distributorship is on an exclusive basis giving the distributor the right of sale of the product within the above-mentioned areas and it further provides that "supplies will be made only direct to the distributor". However, when, on the advice of the distributor, bulk supplies are effected in wagon-load or lorry-load lots, the company may effect supplies direct to the consumer, provided the distributor arranges the payment as per the relevant clause in the agreement and also takes the responsibility to bear entirely the effects and risks resulting from effecting such direct despatches. It is evident that the supplies are made by the company to the distributor, though in certain case it any be sent to the address of the consumer on the advice of the distributor provided payment is arranged by the distributor himself and the distributor also takes the responsibility to bear risks arising from supply to the consumer on his advice.
(3.) IN clause 2 (b) the right to effect the sale to anybody and anywhere in INdia is reserved with the company and for such sales it is provided that the distributor will not receive any commission. The right to increase or reduce the areas of operation of the distributor or terminate the distributor without assigning any reasons is reserved in the company by clause 3.;

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