1. These are two Tax Revision Cases which arise out of assessment proceedings for the years 1953-54 and 1954-55 in T. A. Nos. 214 and 215 of 1957 respectively. The turnover in dispute in both these cases is Rs. 4,07,599 and Rs. 26,92,401 and they relate to the purchases of castor seeds made in the erstwhile Hyderabad State by the Bombay Export Company with its headquarters at Bombay. The castor seed is a commodity taxable at purchase point, according to the Hyderabad General Sales Tax Act. The course of business was that the assessee acting as the agents for the Bombay Export Company for taking delivery of the said castor seeds, purchased in the Hyderabad State used to pay the purchase price as remained unpaid by the company to the vendors, take delivery and store the same on company's behalf. There was a tripartite agreement between the assesses, the agent, and the Bombay Export Company, the principal, and also Jitcndraprakash God of Bombay, the guarantor. Under the terms of the said agreement, the company appointed the assessee as its agents for the purpose above mentioned with a stipulation of payment of commission on the purchases made. The amounts paid by the assessee had to be repaid within two months with interest thereon at 6 p.c. There was a further condition that both the commission and the amounts advanced shall be a first charge on the goods. In pursuance of this agreement the assessee paid the price, took delivery and stocked the goods. In relation to these transactions they were assessed to a tax stated above. The assessee M/s. Ramdayal Ghansiram and Sons, demurred to this assessment on the ground that they are not the agents of a non-resident principal within the meaning of Section 14-A as the Bombay Export Company had a branch in the first floor of buildings of Raja Kishandas in Sultan Bazar during the period for which the assessment is made. The second ground shown was that the assessee firm in relation to the purchases made by the company in the State occupied the position of a more financier, which for the advances made was entitled to interest and the goods purchased stood as a pledge in its custody. The goods in fact did not come directly from the vendor into its custody. There were representatives of the company who took delivery and gave the same into firm's custody as they stood pledged for the advances and also for commission. The third ground shown was that the purchase of the castor seed was all effected in Bombay itself outside Hyderabad State and as such these transactions were not liable to be taxed here.
Lastly, it is urged that as the transactions of purchase were made in the course of inter-State trade and commerce within the meaning of Article 286(2) the imposition ot tax is ultra vires. It was also urged that the assessing officer had mixed tip the assessment in respect of the assessee's own business with the business in respect of non-resident dealers. So the levy is not correct. These objections were overruled by the authorities concerned and the Appellate Tribunal also agreed with them. The petitioners have, therefore, come to this Court and have reiterated the same pleas which they unsuccessfully advanced before the Tribunal.
2. Now we take up each ground separately. The first ground is that the Bombay Export Company had its branch in Sultan Bazar, Hyderabad during the period of assessment and so the Company cannot be considered as non-resident principal. This it may be noted is a question of fact which has been considered at length by the Appellate Tribunal with due regard to the evidence adduced and was found against the petitioners. The contention of the assessee is that they should have been given an opportunity to adduce further proof in the matter. Such a plea, in our opinion, is not tenable because when the party had an opportunity and availed of the same it is not open for it to Insist on further opportunity after it is found that on the evidence adduced the contention as advanced has not been established.
3. Yet another ground which may be summarily disposed of in a like manner relates to the alleged composite assessment made in the case of the petitioners in relation to their business as dealers and also as agents of non-resident principals. It would appear from the record that the petitioners had business of cotton seed, oil seed and grains both in the City of Hyderabad and several districts of the State. They were thus dealers at Hyderabad. Besides they were also agents of the non-resident principals in relation to castor seed transactions entered into by the Bombay Export Company.
Since they had deliberately omitted to file 'A' returns in respect of the transactions of the Bombay Export Company, the rule 14 notices were issued calling upon them to show cause why the turnover of the Bombay Export Company in respect of the goods handled by them as agents should not be taxed and the tax levied against them as agents. It will be seen that notices given for respective years specifically mention Section 18 of the Act as the basis of making the petitioners liable on account of castor seeds taken delivery of within the State on behalf of the Bombay Export Company which is liable to tax under Section 18 of the Act. It cannot, therefore, be said that the appellants had no opportunity to know and meet the case against them or that they did not have any fair treatment at the hands of the assessing authority.
When the bases on which the petitioners were Sougt to be taxed have been distinctly stated to them and they were given sufficient opportunity and further the order of assessment discloses fully such bases, the petitioners cannot evade payment of the tax on the pretext that they should have been given separate notices and a common notice, however distinctly it may state the casa and give full information to the assessee, would not conform to the requirements of law and ought to be wholly disregarded. All that is required in law is that the dealer should be given a reasonable opportunity of proving the correctness and completeness of the return submitted by him. When such reasonable opportunity has been conferred, the requirement of law would be fulfilled. The plea of the petitioners, therefore, is without any force.
4. Now we turn to the question whether the petitioners are the agents of a non-resident principal liable to tax under S, 18 of the Hyderabad General Sales Tax Act. The said provision reads thus;
'In the case of any person carrying on the business of buying or selling goods in the Hyderabad State but resident outside it (hereinafter in this section referred to as a 'non-resident') the provisions of this Act shall apply subject to the following modifications and additions, namely:
(i) in respect of the business of the non-resident his agent residing in the Hyderabad State shall be deemed to be the dealer;
(ii) the agent of a non-resident shall be assessed to tax or taxes under this Act at the rate or rates leviable thereunder in respect of the business ot such non-resident in which the agent is concerned, even if the amount of the turnover of such business is less than the minimum specified in Section 3, or Section 4 as the case may be;
(iii) without prejudice to his other rights, any agent of a non-resident who is assessed under this Act in respect of the business of such non-resident may retain out of any moneys payable to the non-resident by the agent, a sum equal to the amount of the tax or taxes assessed on or paid by the agent.'
This section, does not expressly use the term 'dealer' in relation to a person who resides outside the State carrying on the business of buying and selling goods in the Hyderabad State. As regards his agent, Sub-section (1) says that he shall be deemed to be a 'dealer' for purposes of the Act. This deeming provision implies that though the agent does not come within the expression of 'dealer' as defined in the Act, he will be regarded as such with all the attendant consequences by reason .of the legal fiction created by this provision. The only condition attached to the application of this fiction is that he should be the agent concerned residing in the Hyderabad State. That the Bombay Export Company Ltd. had entered into business of buying castor seed at various places in Hyderabad State is an admitted fact. There is no dispute that the petitioner, resides in the Hyderabad State.
The only dispute is as to his capacity as an agent but this is amply established by the very agreement which vests him with the authority to handle the goods and deal with it. As already stated, there is a tripartite agreement entered into at Bombay between the Bombay Export Company Ltd., and the assessee and Jitendraprakash Goel as guarantor in connection with this business. Its preamble shows that the Company had agreed to appoint the petitioner as its agent, to pay thebalance of the purchase price and to take delivery of the castor seeds purchased by the company and to store the goods on his behalf on the terms detailed in the agreement. In para 2 of the terms of the agreement it is stipulated that the firm shall pay on behalf of the company the balance of the purchase price and take delivery of the castor seeds in the presence of the company's man and store the same on account and risk of the company at Hyderabad and other places in the vicinity where they have been purchased.
Paragraph 5 says that the firm shall pay at Hyderabad as and when delivery of goods is given to them the balance of the price payable in respect of such goods after taking into consideration the sum already paid by the company to the Bombay Oil Seeds Exchange Ltd., and after deducting such sums as the firm, is entitled to deduct according to the rules and regulations of the said Bombay Oil Seeds Exchange Ltd. Paragraph 6 reads that the company i.e., the Bombay Export Co., agrees to pay to the firm at Hyderabad the amount due in respect of the goods removed from the firm's custody whether the goods are removed or not then in any event within two months from the date of delivery (time being essence of the matter) to the firm by the company at the rate of Rs. 0-8-0 per cent per month from the date of each advance till payment and also commission at the rate of one per cent on the total value of the goods (value to be ascertained according to the total price paid by the company).
In addition to the above the company agrees to pay at Hyderabad on the 1st of every succeeding month to the firm and shall bear all godown charges which may be incurred and all insurance charges, hamali, cartage expenses, transport charges and salaries of watchmen etc., with interest at the rate aforesaid. Paragraph 7 reads that the firm shall not be bound to give delivery of any lot until the amount advanced by the firm to the company is paid and until all the sums due under c!. 0 are paid regularly. Para 8 relates to the stipulation of pledge and reads thus:
'The goods shall remain pledged with the firm as security for the moneys due by the company and the firm shall have the first charge on the goods in their possession and custody. The firm shall however be at liberty to hypothecate or pledge the goods in their custody or possession with any bank or bankers in order to raise moneys to pay for and take delivery of the goods.'
Paragraph 9 reads thus:
'If the price of the castor seeds falls below the present market rate of Rs. 100 per candy for May 1954 Vaida of the Bombay Oil Seeds Exchange Ltd., then the company agrees to deposit with the firm in Hyderabad margin of Rs. 25 per candy and a further margin of Rs. 25 per candy for every drop of Rs. 20 in the market price. The company further agrees to maintain and stock with the firm till all moneys due under these presents are fully paid off goods of such value as is equivalent to twice the amount for the time being due to the firm under these presents. The firm shall be at liberty to decline to give delivery of any part of goods if the above margin is not maintained or if the firm considers that their security is jeopardised.'
Para 10 gives a right to the firm to sell and dispose of the goods either by entering into a vaida transaction in Bombay or by public auction or by private treaty subject to such conditions and terms as may be fixed and determined by the firm. In case the deposit is not paid within 24 hours from the date of demand Or if the amount payable under Clause 6 by the company is not paid the firm shall have a right to sell and dispose of the goods.
5. The various stipulations referred to have been extracted here as they have a bearing on the question not only touching the capacity of the assessee as agent but also in relation to the question raised under Article 288(2) of Constitution of India. It is clear from the preamble of the tripartite agreement that the petitioners are mainly an agent of the company appointed for the purposes of paying the balance of purchase price and taking delivery of the castor seeds. Under the terms of the agreement the firm is vested with vast powers over the goods delivered to it. The goods stand pledged with the firm as security for the money due. The firm has a first charge on the goods in its custody.
It can even hypothecate or pledge the same to raise moneys to take delivery of the goods. It has powers even to sell away or dispose of the entire goods in case the money is not paid in terms of the agreement. The goods may be disposed of either by vaida transactions in Bombay Or public auction or by private treaty in any manner the firm chooses subject of course to the conditions fixed and determined by it. The firm has a right to interest as well on the money advanced besides commission at the rate of 1 p.c. on the total value of the goods. These are the salient features of the agreement. We are now concerned with the question whether these various terms are consistent or not with its position as an agent. The term 'agent' is not defined in the Sales Tax Act. We have, therefore, to look to the provisions of the Contract Act. An 'agent' according to the definition in the said Act, is a person who is appointed to represent the principal in dealings with third person.
The tripartite agreement clearly shows that the assessee has been appointed as an agent to pay on behalf of the company purchase-money due and take delivery of the goods. It regulates the various powers of the firm and provides for the indemnity clause, The powers conferred are such as are usually given to an agent under the provisions of the Contract Act. Section 188 of the Contract Act gives an agent to do every lawful thing necessary to do the act for which he is appointed an agent. Section 178 gives power to pledge goods. Under Section 217 the agent has a right to retain remuneration payable to him as an agent, Under Section 221 the agent has a hen on the goods. He can retain goods or other property of the principal received by him until all the amounts due to him by way of commission etc., are paid or accounted to him.
The tripartite agreement gives all these power' and more to the assessee and provides explicitly that the firm has been appointed agent. He may also be a financier for which he is paid interest.
But that is merely an incidental aspect and at any rate does not derogate from its character as an agent. Besides the right to pledge the goods for payment for the purchase of further goods for the principal is not consistent with the right of a financier hut is only consistent with that of a mercantile agent as under Section 178 Contract Act. Thus judged in any manner the whole agreement is consistent with his capacity as an agent who handles goods and has vast powers to deal with it. In these circumstances the plea that the firm is not the agent cannot be sustained.
6. Now the last question for consideration is whether the transaction is within the protection of Article 286(2) of the Constitution of India so that no tax can he levied by the State Legislature. It will he seen that while the State Legislature has exclusive powers to make laws for the State or any part thereof with respect to taxes on sales and purchases of goods other than newspapers as contemplated by Entry 54 in List II of Schedule VII. the Constitution has placed certain restrictions in Article 286 as to the imposition of tax on such sales or purchases of goods.
According to this Article, the State Legislature has no authority to impose tax on sale or purchase which takes place either outside the State or in the course of import of goods into or export of goods outside the territory of India and except in so far as Parliament may by law otherwise provide it cannot levy tax on the sale or purchase of any goods if such sale or purchase takes place in the course of inter-State trade or commerce. It is the last mentioned provision embodied in Article 286(2) we are now concerned with. Before the Tribunal the argument seems to have been advanced on the assumption that the sale had taken place outside the State and hence such sales could not have been taxed to sales tax by the State and to reinforce this argument the fact that delivery Orders were handed over to the company at Bombay long prior to the 'vaida' had been relied on as a circumstance to establish that the sale had taken place outside the State.
But the Tribunal had rightly held that this circumstance does not render the sale an outside sale when the balance of the money had been paid in the State and actual delivery of the goods took place in the State itself. The argument now proceeds on the basis that it is a sale having inter-State elements, and is within the prohibition of Article 286(2). Such an argument was advanced before the Deputy Commissioner also who rejected the same relying on the case of State of Madras v. Gurviah, : 1956CriLJ331 , on the ground that the delivery of the goods and export of the same were distinctly different. It would appear from the language of Article 286 that only such sales as take place in the course of inter-State trade or commerce fall within the ban of Article 286(2). The question whether a particular sale has been made in the course of inter-State trade or not largely depends upon the particular facts and circumstances of each case. As observed by Venkatarama Ayyar J., in Bengal Immunity Co., Ltd. v. State of Bihar, : 2SCR603 :
'A sale could be said to be in the course of inter-State trade only if two conditions concur: (i) A sale of goods, and (ii) a transport of those goods from one State to another under the contract of sale. Unless both these conditions are satisfied, there can be no sale in the course of inter-State trade. Thus, if X, a merchant in State A goes to State B, purchases goods there and transports them into A, there is undoubtedly a movement of goods in interstate commerce. But that is not under any contract of sale. X might be entitled under Article 301 to certain rights in the matter of transportation. But Article 286(2) has no application, as there is no sale in the course of inter-State trade or commerce. In the same illustration, if X after transporting the goods into State A sells them, then also there is no sale in the course of inter-State trade. It is true that there is a sale, and there is also a movement of goods from one State to another. But that movement has not been under the sale, there having been no sale at the time of transportation.'
No doubt the sale transaction in this case was originally entered into by the Bombay Export Company with various dealers in this State subject to the bye-laws of the Bombay Oil Seeds Exchange but the transaction on that account cannot be deemed to be a sale in the course of inter-State trade or commerce. It is clear from the transactions that the goods were to be delivered at various places in the State wherever the sellers are and the transaction was to be completed as soon as the delivery was effected. It was not part of the duty of the sellers to give delivery of the goods at Bombay.
That is the reason why the assessec firm was appointed agent for the company to pay for the balance of the purchase-price and to take delivery of the said castor seeds purchased by the Company and store the goods on its behalf subject to the terms and conditions laid down in the tripartite agreement. It is further significant that after delivery of goods the agent appointed could, under the terms of the tripartite agreement which is independent oE the transaction of sale entered into with the seller, detain the goods, enforce his lien for the amount paid and the expenses borne and even dispose of the goods as he chose subject to the terms and conditions which may be fixed and determined by him as provided in Clause 10 of the tripartite agreement. In short, after the delivery of the goods, the export of the same to the company entirely depended on the turn that the subsequent events may take. The goods may move for their contemplated destination or there may be no movement at all having regard to the defaults committed. Thus there is a long way off between the completion of the sale transaction and the movement of goods to Bombay State.
In these circumstances it cannot be said that as a result of the sale transaction the goods are caught up in the vortex of inter-State trade or commerce. Even after the delivery of the goods it is uncertain whether there could bo any movement of goods at all. The sale did not necessarily occasion the export of goods. The export thereof is naturally determined by the terms and fulfihnent of the conditions laid down in the tripartite agreement which is independent of the transaction of sale and has nothing to do with the sale. It is, therefore, manifest that there was no relationship between the transaction of sale and movement of goods. Where the export of goods does not necessarily arise out of sale nor is it part and parcel of the sale, it admits of no doubt that it is not a sale in the course of inter-State trade.
In a Madras case in Indian Coffee Board, Batlagundu v. State of Madras, 1956-7 STC 135: (AIR 1956 Mad 449), where the contract to sell and the sale took place at the headquarters of the Board of Batlagundu within the State of Madras and subsequently the goods sold were admittedly transported outside the State of Madras it was held that antecedent to the transport the property in the goods had passed to and had vested in the purchaser and that it was as his goods the purchaser transported them out of the State, such transport does not render the antecedent transaction of sale, a sale or purchase in the course of inter-State trade or commerce within the meaning of Article 286(2) of the Constitution. Similarly in : 1956CriLJ331 . where the purchases made by the respondents after securing orders for supply of goods to the London buyers by going about or purchasing the requisite kind and quantity of goods to implement such orders, it was held such purchases though effected for the purpose of export did not fall within the exemption inasmuch as they did not themselves occasion the export.
It is, therefore, manifest that the flow of goods into different States ought to be the direct result of the uninterrupted course of the transaction of sale to he caught up in the vortex of what is said to be the course of inter-State trade or commerce. Judged by this standard though the contract might have been entered into by the Bombay Export Company, subject to the bye-laws of Bombay Oil Seeds Exchange, which only means that the contract would be governed by the said bye-laws for the purpose of arbitration and appeals in case of dispute, the sale transaction thereunder is not a sale in the course of inter-State trade as delivery is contemplated to be effected in the State itself and the movement of the goods thereafter would largely depend upon certain circumstances and conditions which in no way form part of the sale transaction and with which the seller is in no way connected. In these circumstances the plea taken under Article 286(2) which fetters the legislative powers of the State to tax the sale in the course of inter-State trade and commerce is wholly devoid of force.
That apart, even if it be assumed that thesale was in the course of inter-State trade, the transactions for the questioned period were protectedby the President's Sales Tax Laws Validation Act(VII of 1956) which Act was brought into questionin Sudararamaier and Co. v. State of Andhra Pradesh, : 1SCR1422 , and was found to be quite valid and intra vires the powers of the Parliament. No further question now remains to be determined. Both the petitions would fail. They are, therefore, dismissed with costs. Advocate's fee Rs. 250/ in each.