1. This is a reference under section 61(1) of the Bombay Sales Tax Act, 1959 (hereinafter referred to as 'the said Act'), made at the instance of the Commissioner of Sales Tax.
2. The facts giving rise to this reference are as follows :
3. The respondent is a manufacturer of drugs. In August, 1959, the respondent entered into an agreement for the sold distributorship of its products with one Herbertsons Private Limited. The terms of this agreement are contained in a letter dated 28th August, 1959, addressed by the respondent to the said Herbertsons Private Limited. By the said letter the respondent appointed the said Herbertsons Private Limited from 1st September, 1959, as the sold distributors for sodium salicylate manufactured by the respondent for several States within the territory of India as set out in the said letter. It was agreed that the prices would be maintained in parity with those of the allied manufacturers. The respondent agreed to allow a commission of five per cent on its price list to Herbertsons Private Limited. It was further agreed that where some special lot rates in respect of orders over 500 cwt. from buyers were given, Herbertsons Private Limited would be authorised to allow full five per cent where required and they would be allowed a minimum of three and a half per cent It was provided in the said letter that Government tenders and supplies handled directly by the respondent would not be covered by the arrangement. Herbertsons Private Limited were, however, authorised to de direct business with the Government in the eventualities stated and, in that case, it was provided that they would get such commission as was settled between the parties. It was agreed that any fluctuations in the prices would be to the account of the respondent and the stocks held by Herbertsons Private Limited and their various depots would be duly allowed to issue debit or credit notes. As far as the question of payment was concerned, the arrangement contained in the letter of Herbertsons Private Limited dated 22nd August, 1959, was confirmed. In that letter dated 22nd August, 1959, it has been provided that Herbertsons Private Limited would for an initial period of six months pay fifty per cent of the bills of the respondent on receipt of the goods in their godown and the balance of fifty per cent would be settled within thirty days. The said letter dated 28th August, 1959, further provided that the respondent would abstain from making direct supplies within the territories covered by the agreement from 1st September, 1959, but where it was feasible to make direct supplies the same would be made and intimated to the respondents. It was recorded that the announcement about the distributorship would be inserted in the papers. It was agreed that Herbertsons Private Limited would be selling the products of the respondent at their depots at the price fixed by the respondent plus the actual expenses incurred by Herbertsons Private Limited.
4. Pursuant to the agreement set out in the said letter dated 28th August, 1959, the respondent inserted an advertisement in the newspaper 'Statesman' dated 8th September, 1959, announcing the appointment of the said Herbertsons Private Limited, Bombay, as its sole distributors for India excepting South India. From the judgment of the Tribunal it appears that Herbertsons Private Limited, as distributors, were required to submit monthly statements of sales and stock position. From the debit notes sent by the respondent, as and when the goods were despatched, it appears that the said debit notes were for the list prices of the goods despatched less the commission payable to the said distributors. As and when the list prices at which the sales were to be made were altered by the respondent, corresponding debit notes were sent either by the respondent, in case the prices were raised, or by the distributors where the prices were reduced, in respect of the stocks held by the distributors. In respect of the assessment periods from 1st January, 1960, to 31st March, 1960, and 1st April, 1960, to 31st March, 1961, the Sales Tax Officer, who assessed the respondent, included the amounts of Rs. 17,752 and Rs. 1,34,397 respectively representing the transactions between the respondent on the one hand and their distributors, Herbertsons Private Limited and one Messrs. Sivaram and Swamy, on the other, in the taxable turnover of the respondent on the ground that the transactions between the respondent and the said distributors were in the nature of sales by the respondent to the said distributors and exigible to tax under the said Act. The respondent preferred appeals against this decision to the Assistant Commissioner of Sales Tax, who dismissed the said appeals. The respondent then preferred two second appeals being Second Appeals Nos. 703 and 704 of 1965 to the Sales Tax Tribunal. In these appeals, the Tribunal came to the conclusion that the distributors were only the agents of the respondent and the property in the goods sent to the distributors did not pass to the distributors. It was held that the transactions between the parties being agency transactions were not sales and were not liable to tax under the said Act. This consolidated reference in respect of both the said second appeals has been made at the instance of the Commissioner of Sales Tax. 5.
5. The question, which has been referred for our consideration is as follows :
'Whether, on the facts and in the circumstances of the case and on proper interpretation of the agreement between the parties, the Tribunal was justified in law in concluding that the relation between the respondent and the distributors was that of principal and agents and not of vendor and vendees and, consequently, the transactions between the parties being agency transactions were not sales liable to tax ?'
6. The submission of Mr. Kotwal, the learned counsel for the Commissioner of Sales Tax, was that there were sales by the respondent to the said distributors of all the goods supplied to the distributors under the aforesaid agreement, that these sales were completed as soon as the goods were despatched to or, in any event, received by the distributors and that these sales were assessable to tax under the provisions of the said Act. On the other hand, the contention of Mr. Patel, the learned counsel for the respondent, was that the said distributors were merely agents of the respondent and that the despatches of the goods to the said agents by the respondent did not amount to sales as contended by the department.
7. In this connection, it would be useful to refer to the decision of the Supreme Court in Hafiz Din Mohammad Haji Abdulla v. State of Maharashtra  13 S.T.C. 292 (S.C.). In that case, the assessees carried on the business of manufacture and sale of bidis in and outside the State of Madhya Pradesh and despatched bidis to merchants at diverse places in India. These merchants, to whom bidis were despatched, executed agreements in the form of letters addressed to the assessees. A specimen form of the said letters was as follows : '(1) You will have to meet my demand of bidis in my area. (2) You will have to give delivery of bidis at Manmad station. (3) I will sell your bidis at the rate fixed by you adding to it the expenses incurred. (4) Money towards goods will be remitted to you as sales are effected or sometimes remittance will be made in advance. (5) After the goods are delivered, I shall be responsible for the damages or risk at any place or in transit. (6) I shall take from you, in lieu of my labour, Rs. 3-3-0 as commission per pitara. (7) You will have the right to increase or reduce the rate of bidis. (8) On the goods remaining in stock when the rate is increased or decreased, necessary adjustment of accounts will be made. (9) If I were to be acting in contravention of these conditions, you will have the right to cancel my agency. You will have the right to make arrangements for the sale of your bidis as you think best.' It was observed by the Supreme Court that the relationship between the parties had manifestly to be ascertained in the light to the terms incorporated in the letter. Their Lordships have pointed out that a sale is transfer of property for a price. After referring to the terms of the said letter, their Lordships held that the diverse clauses of the said agreement created a relationship of principals and agent and not of vendors and purchaser. In coming to this conclusion, the Supreme Court has particularly referred to clause (4) of the letter, which provided that the money towards goods would be remitted as sales were effected or sometimes in advance. The Supreme Court has also pointed out that bidis were expressly referred to in the said letter as 'your bidis'. It has also been emphasised that the prices were liable to be altered at the instance of the supplier and the person to whom the goods were supplied was to receive a fixed remuneration for his exertion and was liable to remit the price only after the sale was effected. On these considerations it was held that the relationship was of principals and agent and not of vendors and purchaser and that the transactions were not sales liable to tax under the C.P. and Berar Sales Tax Act, 1947.
8. Coming to the agreement in question, we find that there are significant similarities between this agreement and the agreement which had come up for construction before the Supreme Court. In the agreement before us also, it has been provided that the prices at which the goods are to be sold by the distributors would be determined by the respondent and that the distributors would get a fixed remuneration being commission at the rate of five per cent of the price list except in the case of bulk orders. There is a provision that fluctuation in prices would be to the account of the respondent and that debit or credit notes would be allowed on the basis of price fluctuations in respect of the stocks held by the distributors. The distributors have been authorised to replace any quantity supplied to the dealers in case of any defect in the quality and the respondent has undertaken to replace such goods. As pointed out by the Tribunal, the distributors were required to submit monthly statements with regard to the sales and stock position. In our opinion, the position is not very much different from that which existed before the Supreme Court in the aforesaid case. It is true that in the case before the Supreme Court the moneys were to be remitted only after the sales were effected and it was only sometimes that remittances were made in advance. That, however, in our view, was not the governing factor on the basis of which the decision of the Supreme Court was arrived at. It must be appreciated that the question, with which we are really concerned, is not so much, as also appears from the aforesaid decision of the Supreme Court, to define the precise relationship between the respondent and the said distributors, but, whether there was a sale by the respondent to the distributors of the goods despatched by the respondent to the distributors under the said agreement. In this connection, it is very significant that it is the respondent who, even after the said goods were despatched, remained entitled to regulate the prices at which the goods were to be sold by the distributors. Whether these prices were increased or decreased did not, in any significant way, affect the returns obtained by the distributors, who were entitled to a fixed remuneration at five per cent being their commission. It is true that payments have to be made, or debit or credit notes exchanged, when the goods are consigned by the respondent to the distributors. But, in view of the fact that there is a provision for appropriate debit or credit notes being exchanged in case of revision of prices, this seems to be merely a mode of accounting between the parties. In our view, these circumstances clearly indicate that the property in the goods did not pass to the distributors merely on the goods being despatched to or received by them. Hence it could not be said that as soon as the goods were despatched to the distributors or received by them, the same were sold by the respondent to the distributors.
9. Strong reliance was placed by Mr. Kotwal on the decision of a Division Bench of this Court in Daruvala Bros. (P.) Ltd. v. Commissioner of Income-tax, Bombay : 80ITR213(Bom) . In that case, the court, on a construction of the agreement between the parties, came to the conclusion that although the assessee had entered into an agreement with Ciba Pharma Ltd., which was, on the face of it, an agreement for distributorship of the products of Ciba Ltd. of Basle (Switzerland) imported into India by Ciba Pharma Limited, on a true construction of the said agreement, it really provided for a scheme for sale of all the pharmaceutical goods of Ciba Limited in the territories mentioned in the said agreement to the assessee, In our view, this decision is not of much assistance in the case before us, because it is based on the terms and conditions contained in the particular agreement before the court in that case; and the judgment clearly shows that the Division Bench, in coming to the conclusion that it did, relied strongly on the clause in the agreement which prevented the assessee from making any contracts in the name of or purporting to be on behalf of the importers, viz., Ciba Pharma Ltd., and further prevented the assessee from pledging the credit of the importers. It is also significant that on a construction of the said agreement, the court came to the conclusion that the losses that might be suffered on resales effected by the assessee could not be visited on the importers. In the case before us, there are no such clauses in the agreement. Apart from that, the advertisement, to which we have already referred earlier, clearly shows that the respondent was in fact anxious to make quite clear that the distributors were acting as its agents, and the situation was entirely different from a case where the intention was that the distributors should not be entitled to represent that they were the agents of the alleged principals.
10. We may also refer to a decision of the High Court of Andhra Pradesh in Hyderabad Chemicals and Fertilizers Ltd. v. State of Andhra Pradesh  22 S.T.C. 298. In that case, it was held that where an agreement between a manufacturing company and its sole selling agent envisaged only a relationship of principal and agent and not that of vendor and purchaser and there was no evidence to show that the parties had given up the agreement of agency and had been entering into outright sale transactions, it could not be said that the transactions between the parties amounted to sales, and the commission paid to the agent was not a discount within the meaning of section 2(s)(ii) of the Andhra Pradesh General Sales Tax Act, 1957, and the Rules framed thereunder. In that case, it has been pointed out that payment of full value on the delivery of goods need not necessarily be repugnant to the idea of agency. It is also significant that in the case before us, the agreement is one of not merely of distributorship but of sole distributorship in respect of the territories set out in the agreement.
11. It may be pointed out that the aforesaid amounts included in the taxable turnover of the respondent by the Sales Tax Officer also included amounts representing the transactions between the respondent and M/s. Sivaram & Swamy, Madras, who were appointed by the respondent as the distributors for South India. In connection with M/s. Sivaram & Swamy, the Tribunal has proceeded on the footing that the agreement between them and the respondent was, in all material respects, the same as the agreement between the respondent and Herbertsons Private Limited, to which we have already referred earlier. In view of this, what we have observed in connection with the transactions between the respondent and Herbertsons Private Limited would also apply to the transactions between the respondent and Sivaram & Swamy. Apart from this, it appears from a letter dated 5th October, 1960, addressed by Sivaram & Swamy to the respondent that Sivaram & Swamy by the said letter requested confirmation by the respondent for selling the stocks of sodium salicylate held by them at a reduced price and sent a debit note on account of reduction in the price to the respondent. In another letter addressed by Messrs. Sivaram & Swamy dated 27th May, 1960, to the respondent, there is a reference to the agency commission of five per cent. payable by the respondent to the said parties. From the letter dated 8th June, 1960, addressed by Sivaram & Swamy to the respondent, it appears that Sivaram & Swamy submitted their quotation to the Kerala Government as suggested by the respondent to the said Sivaram & Swamy. These letters leave no doubt at all that Sivaram & Swamy were merely the agents of the respondent.
12. In our view, therefore, both the aforesaid distributors were merely distributing agents of the respondent in respect of the goods despatched by the respondent to them and the despatch of these goods by the respondent to the said distributors and the receipt of the same by the said distributors do not amount to sales within the meaning of the said term in the said Act.
13. In the result, the question referred to us is answered in the affirmative. The applicant to pay to the respondent the costs of this reference.
14. Reference answered in the affirmative.