P. K. BANERJEE, C. J. - (1.) THIS rule is directed against an order passed by the CTO in a proceeding u/s 12 of the Rajasthan ST Act. The petitioner company entered into an agreement with Rallis India Limited to act as petitioner company's sole distributors for selling and marketing insecticides and pesticides in Rajasthan and other places. It appears, this agreement was entered into on 12-11-1964 which was to remain in force for five years from 1-9-1963 to be extended by mutual consent for a further period of five years from 1-9-1968. It appears that the petitioner was to pay commission to M/s Rallis India Limited and this was confirmed by the Board of Directors of Rallis India Limited. The Rallis India Limited was assessed to tax for the insecticides and pesticides sold by them as a Distributor of the Principal Tata Fison Ltd. The assessment, however, is pending in appeal. The assessed tax was paid by Rallis India Ltd. It is further stated that inspite of the fact that Rallis India Limited has now been taxed, the respondent is proceeding with the notice u/s 12 of the Rajasthan ST Act. It is further stated that Rallis India Limited is acting as agent to the petitioner company and the products of the petitioner company have been marketed by Ganganagar branch of Rallis India Limited. On 18-3-1970, the Asstt. CTO, Ward No. 2. Circle 'b', Jaipur, directed the petitioner's authorised representative to produce the account books pertaining to purchase and sale of the petitioner's Alwar Branch. It is stated also that the said officer intimated the petitioner company that M/s Rallis India Limited did not act as an agent for the petitioner and the petitioner company has concealed the turnover relating to Alwar Branch and filed incorrect returns which is an offence u/s 16 (1) (e) of the Raj. ST Act The company was given an opportunity of being heard on 2-4-1970 in respect of the aforesaid matter and thereafter it was held on the preliminary issue that Rallis India Limited was a buyer and not an agent of the petitioner company. In the mean time, it may be stated, that Rallis India Limited, who filed the return without mentioning therein the sales made as a distributing agent of Tata Fison Company, revised their return and included the sales which were made by Rallis India Limited to others. It appears further that assessment has been made against Tata Fison in respect of the alleged purchase made by Rallis India Limited from Tata Fison Limited. An application appears to have been made by Tata Fison through their Chartered Accountant to the CTO on 28-9-1972 stating therein, inter alia, that the petitioners are the principal and Rallis India Limited is an agent of the petitioner and they are not buyer and seller in the sense of the terms. When this order was made, the petitioner moved this court and obtained the present rule and an interim order.
(2.) FROM the agreement which is annexed as Annexure P/2 to the writ petition, it appears to me that it is difficult to hold that the petitioners and Rallis India Limited are related between themselves as seller and buyer from the terms of the agreement. It appears from Annexure P/2 that the petitioner is a company and the Rallis India Limited is its distributor. The company is engaged in the manufacture, formulation, marketing and import of pesticides and the distributors, that is, the Rallis India Limited are engaged in the distribution, selling and marketing of various products including pesticides of the company and the company being desirous of appointing as its distributors for its products in the territory for the period at the remuneration and upon the terms and conditions hereinafter mentioned. From the various terms including the cl. (8) sub-cl. (f), it appears, the company agreed to pay to the distributor, by way of remuneration for the services to be rendered by them under the said agreement following commission and fee, namely; (i) Commission : Sale to the trade 12% on list price, sales to Government and Government Agencies 5% on list price, (ii) Fee : The company shall in addition to the commission on sales, pay an annual fee of Rs. 10 lakhs. The fee was to be paid every quarter within ten days of 31st October 31st December, 31st March and 30th June, as stated in the agreement. It will appear from the agreement that the distributors could appoint sub-distributors and stockists and a list of such sub-distributors and stuckists was to be submitted to the company and the company was to be kept informed at all times of any changes or additions. The distributors were liable for all actions including negligent or wrongful acts of their sub-distributors and stockists. It was further agreed that the company shall consign the said products for sale to the distributors at the company's list prices, the list price shall be determined by the company and shall be liable to be changed by the company without prior notice, so as however not to affect the commitments already made by the distributors. The said products lying in the custody of the distributors shall continue to be the property of the company till they are sold and it will have the right to recall them at any time, the distributors shall take such care of the aforesaid products lying in their custody as they would take of their own goods. It is further stated in the said agreement that in case of leakage etc. , the company will be liable to make amends or pay damages to the distributor, if the claims are made within three months from the date of damage or leakage of six months in some cases. It has further been provided that any claim for damages or otherwise made be any person on the ground of any advice, warranty, representation or mis-representation alleged to have been given or made shall be the responsibility of that party whose employee, representative or agent gave or made the advice, warranty, representation or misrepresentation. These were the terms, generally, which arc to be considered whether the agreement is one between the principal and agent, or buyer and seller. Mr. Mehta on behalf of the petitioners contended that from this agreement itself it is clear that it is an agreement between principal and agent and not buyer and seller. Mr. Sharma, on behalf of the respondents, however, contended that it is clear that sale of goods of the petitioner was made through distributors Rallis India Limited and therefore, the questions of principal and agent does not at all arise. In my opinion, reading into the terms and language of the agreement, it is quite clear to hold that the petitioner Tata Fison is a principal and Rallis India Ltd. is its agent. It is clear from the agreement itself, whatever the parties may think about the nomenclature: distributors or agency that the company is a principal and Rallis India Limited is an agent of the principal. In such case, the Supreme Court has held in Rohtas Industries Ltd. vs. State of Bihar (1) on which Mr. Sharma relied, as follows: 'the question whether there was a sale attracting liability to pay sales tax depends upon a construction of the agreement between the Marketing Company and the manufacturing companies. If property in the Cement passed to the Marketing Company in return for the price and the Marketing Company sold the cement on its own, then sales tax must be paid by the manufacturing companies. An examination of the various clauses of the agreement discloses that such was in fact the case. The true nature of a transaction evidenced by a written agreement has indeed to be ascertained from the covenants and not merely from what the parties chose to call it. The words of an agreement must be carefully scrutinized in the light of the surrounding circumstances. . . " Applying this principle of scrutinizing the clauses of the agreement, as I have just indicated hereinbefore, it is clear that the petitioner is a principal and Rallis India Limited is an agent of the petitioner company. Reliance has been placed on a case reported as the Bohpal Sugar Industries Ltd. vs. Sales Tax Officer (2) wherein it has been held as follows: "a contract of agency differs essentially from a contract of sale in as much 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 instructions and directions. Furthermore, since the agent is not the owner of the goods, if any loss is suffered by the agent he is to be indemnified by the principal. " From this, it is quite clear that in the present contract between Tata Fison and Rallis India Limited, there is a relationship of principal and agent, the principal is owner of the property until it is sold and the distributors are entitled to be indemnified if there is a leakage or shortage, within a certain time. In the same judgment, it has been held also: '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" and 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 statues 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. " From the terms of the agreement between Tata Fison and Rallis India where Tala Fison is described as company and Rallis India as distributors, reading the text of the whole thing, it is clear to me that this is an agreement between principal and agent in respect of the pesticides etc. which Tata Fison wanted to distribute through Rallis India in the whole of Rajasthan. Therefore, in my opinion, the agreement quite clearly spells out an agreement between the principal and his agent and there was an agency agreement, and not a buyer and seller. Mr. Sharma, however, contended that notice was given u/s 12 of the Rajasthan ST Act, and, therefore, Tata Fison can take this plea before the Commercial Taxes Authorities. In my opinion, it is possible for any petitioner to invoke the jurisdiction u/art. 226 and 227 of the Constitution if he can bring some point, on the facts that the Sales Tax Authorities have an initial lack of jurisdiction in continuing the proceedings. At this stage, it is convenient for me to refer that the principal is Tata Fison and its distributor-agent is Rallis India Limited. It is clear from the record which have been produced by Mr. Sharma and from the affidavits filed by him as also by Mr. Mehta in his petition that Rallis India Limited did file a return though after notice being served u/s 12 of the Sales Tax Act on the Tata Fison about the sales made by the Rallis India Limited as distributors to different parties and some tax has been paid. Mr. Sharma, however, contended that the tax though paid, is under appeal and supposing if the appeal is decided against Rallis India. In my opinion, this argument is fallacious. Sec. 9b of the Rajasthan ST Act runs as follows: "9b. Liability of the principal and the commission agent to pay tax - (1) Where a commission agent sells any taxable goods on behalf of his principal, such commission agent and his principal shall both be jointly and severally liable to pay the tax on such sales. (2) If the principal on whose behalf the commission agent has sold goods shows to the satisfaction of the assessing authority that the tax has been paid by his commission agent on such goods under sub-section (1), the principal shall not be liable to pay the tax again in respect of the same transaction. "
(3.) FROM s. 9b, it is quite clear that either the principal or the agent is liable to pay the tax though they are severally and jointly liable but in the facts of the present case it appears from the papers on record that Rallis India Ltd. in fact is to be assessed for the goods which were sold by them as commission agent. In such cases, therefore, if Rallis India Ltd. has already been assessed to tax and it is pending appeal, it is no answer to say that if the assessment is set aside in appeal, the taxing authorities will not be entitled to tax the principal itself. It is not for me to answer this question at this stage as the appeal is pending and that will be subject to the result of the same. Mr. Mehta, on the other hand, very fairly conceded that if Rallis India Ltd. does not pay the tax, Tata Fison will certainly pay the tax on behalf of its agent. As is well known, in any agency agreement, if an agent does not pay the liability of the principal, in fact the principal is as much liable to pay the tax. Mr. Mehta also makes it clear that such tax can be levied on the principal, but that stage has not yet come. It is clear that Tata Fison is the principal and Rallis India Limited is an agent in respect of the sale of goods of Tata Fison. Number of cases have been cited by Mr. Mehta on this point, namely Hafiz Din Mohammad Haji Abdulla vs. State of Maharashtra (3) and State of Tamil Nadu vs. Rafeeq Ahmed & Co. (4) and also other cases of different High Courts. It is not necessary for me to refer to these decisions. In my opinion, the agreement is between the principal and the agent and. therefore, if the agent has also been assessed, proceedings u/s 12 of the Rajasthan ST Act against the principal cannot continue and, therefore, must be set aside. The rule is made absolute to the extent indicated above with the observations made in the body of the judgment. There will be no order as to costs. .;