P.V. Dixit, C.J.
1. This order shall also govern Miscellaneous Civil Case No. 306 of 1957.
2 These are two references by the Board of Revenue, Madhya Pradesh, under Section 23(1) of the Madhya Pradesh Sales Tax Act, 1947. They arise out of orders of assessment to sales tax on the assessee Dayaram Rathod for the period from 22nd October, 1949, to 9th November, 1950, (Miscellaneous Civil Case No. 306 of 1957) and for the period from 10th November, 1950, to 30th October, 1951, (Miscellaneous Civil Case No. 305 of 1957). The questions referred to for the opinion of this Court in the two references are identical. They are, namely:-
(1) Whether paragraphs 2 and 4 of the agreement relate to different types of transactions If so,
(2) Whether in respect of transactions under paragraph 4, the non-applicant could be assessed as a dealer within the meaning of Section 2(c) of the M.P. Sales Tax Act?
3. The material facts are that the assessee who does business in the name and style of 'Indian Mill Stores' was by an agreement dated 10th September, 1952, appointed by the Gulf Oil (India) Limited, Calcutta, as its distributor for selling the goods of the Gulf Company in the districts of Raipur, Durg, Bilaspur, Raigarh and other districts. By Clause 1 of the agreement the company granted to the assessee the privilege of selling its goods in the districts mentioned above. By Clause 2 it was provided that the company would sell the distributor and the distributor would buy from the company the products at the prices established by the company in the territory concerned as on the date his order was accepted by the company and the distributor would sell to his customers on his own responsibility without rendering the company responsible or liable in any manner in respect of any sale made by him to his customers. The selling price of the distributor to his customers had to be fixed by mutual agreement from time to time. If there was no agreement for any reason, then the selling price of the distributor was not to exceed more than 20 per cent, of the company's selling price to him. Clause 4 of the agreement on which the asseseee mainly relies is an important one and it is necessary to set it out in extenso. It is as follows :-
4. Orders from the Distributor's customers must be countersigned by the Distributor, indicating his acceptance of the said orders. The Distributor shall countersign all orders from his customers in token of the Distributor's responsibility and liability to the Company for the price thereof as also in token of the correctness in quality, quantity and specification thereof. The Company shall not be responsible or liable in respect to any mistakes or errors in the said orders. The relative Railway Receipts or Bills of Lading will be sent to the Distributor through the Company's Bankers unless otherwise mutually agreed. Invoices will be made out by the Company in the name of the Distributor and submitted to the Distributor who shall be responsible for payments to the Company for all orders accepted by him. All sales by the Distributor will be made by him as goods belonging to, manufactured, or imported by the Company and the Company retains all its proprietary marks, labels and designs and the Distributor shall do nothing to lower the reputation or the value thereof in the market. The Company however reserves the right in its sole discretion and without advancing reasons to refuse to execute any orders.
Under Clause 5 the distributor was allowed an allowance in respect of orders secured by the company or its salesman in territories other than those for which the assessee was appointed as a distributor for direct despatch by the company of its products to customers in the territory of the distributor. This clause also reserved to the company the right of quoting and securing orders direct from parties in the territory of the distributor. In the case of such sales, the allownce payable to the distributor was left to the discretion of the company.
4. During the year 1949-50 the sale proceeds of the products sold by the assessee were found to be Rs. 50,228. They were Rs. 34,743 for the year 1950-51. The assessee contended that he was not liable to pay any sales tax on these transactions as by virtue of Clause 4 of the agreement in regard to those transactions he was only a guarantee-broker and not a dealer within the meaning of Section 2(c) of the Act. This contention was negatived by the Sales Tax Officer as well as by the Deputy Commissioner of Sales Tax in first appeal and by the Commissioner, Sales Tax, in second appeal. When the matter went up in revisisn before the Board of Revenue, the Board relying on C. P. Coal Trad-ing and Distributing Co. v. Commissioner of Sales Tax I.L.R. 1954 Nag. 355 and Govindprasad Gour. v. Commissioner of Sales Tax M.C.C. No. 210 of 1952, decided on 8th December, 1953 came to the conclusion that clauses 2 and 4 of the agreement related to different types of transactions; that while in transactions covered by Clause 2 the assessee admittedly bought goods from the oil company and sold them to his customers, in regard to transactions falling under Clause 4 his role was only of a guarantee-broker ; and that, therefore, he was not a dealer within the meaning of Section 2(c) of the Act. Accordingly, the Board of Revenue held that the assessee was not liable to sales tax on the disputed transactions. Now these references have been made at the instance of the State.
5. Shri Khaskalam, learned Government Advocate contended that on reading all clauses of the agreement together it was clear that the assessee was appointed as a distributor with the privilege of selling the products of the Gulf Oil Company in certain territories ; that Clause 2 of the agreement governed all sales and Clause 4 only prescribed the procedure for the acceptance of the orders by the distributor and their execution by the company ; that these two clauses unmistakably showed that the goods were in the first instance sold by the company to the distributor who then sold them to his customers ; that as found by the Sales Tax Officer all orders from the customers were countersigned by the distributor and the assessee had also filed suits against several customers for the recovery of the dues from them ; and that those customers were liable to the distributor for the payment of the price of the goods purchased by them and not to the campany. Learned Government Advocate said that the position of the assessee was no better than that of a favoured buyer from the Gulf Oil Company and there was nothing in the agreement or in the course of business to indicate that the assessee had become a guarantor and a broker in regard to the sale transactions in question.
6. In reply, Shri Dabir, learned counsel for the assessee, submitted that the assessee was merely a guarantee-broker whose business was to bring the buyer and the seller together and his liability was to guarantee payment of the price to the Oil Company with a right to reimburse himself from the customer; and that he was never placed in possession of the goods of the company, nor did the property in them pass to him at any time. Learned counsel placed strong reliance on Govindprasad's case1 and the decision of the Supreme Court in Mahadayal v. Commercial Tax Officer A.I.R. 1958 S.C. 667. It was also said that the question whether the assessee was a guarantee-broker or a principal or an agent so as to be a dealer under Section 2(c) was a question of fact and on the facts and circumstances attending the sale transactions in question and on the construction of clauses 2 and 4 of the agreement the Board of Revenue having determined that the assessee was a guarantee-broker, this Court was not entitled to disturb that finding of fact.
7. In our view, the assessee was clearly a dealer in regard to the transactions in question and is liable to sales tax. Section 2(c) of the Act defines 'dealer' as meaning 'any person who, whether as principal or agent, carries on in Madhya Pradesh the business of selling or supplying goods, whether for commission, remuneration or otherwise....' Thus the person sought to be taxed must carry on the business of selling goods whether as principal or as agent. The tax cannot be imposed unless the assessee can be said to have carried on the business of selling the goods whether as principal or as agent, Now the terms of the ageeement dated the 10th September, 1952, under which the assessee carried on the business as 'distributor' and the course of his business found by the taxing authorities clearly show that the assessee was not acting as a guarantee-broker who brought together the Gulf Oil Company and the purchasers of its goods but he acted as a buyer from the oil company and sold the goods at prices fixed under Clause 2 of the agreement. The various clauses of the agreement have to be read together in order to determine the correct position of the distributor. So read, there can be no doubt that the assessee was granted the privilege of selling the products of the Gulf Oil Company in certain areas, and that he was to buy from the company the products at certain prices and sell it to his customers on his own responsibility and without in any way making the oil company liable in respect of 'any sale made by him to his customers'. Clause 2 of the agreement clearly governs all sales made by the distributor to his customers. Clause 4 of the agreement does not at all deal with the sales effected directly by the company with parties in the territories for which the assessee was appointed as distributor. It required the distributor to indicate his, not of the company's, acceptance of the orders from his customers by signing them. The distributor was made liable to the oil company for the price of the goods. It was on him that the liability for correctness in quality, quantity and specification of the goods was imposed. Clause 4 did not make the distributor's customers liable for the price to the company or for the correctness of the specifications of the products. Further Clause 4 laid down that invoices would be made out by the company in the name of the distributor and submitted to the company 'for all orders accepted by him,' and that railway receipts or bills of lading would be sent to the distributor. The goods in question were thus not directly supplied by the oil company to the customers and the invoices were not to be made out in the names of the customers. All these requirements about the execution of the orders of the distributor's customers point to the fact that the sale of the company's products was not by the company direct to the customers but was first to the distributor, who then sold it to the customers whose orders he had accepted and submitted to the company for execution. That Clause 4 is not concerned at all with direct sales by the oil company to customers in the territory of the distributor becomes clear from the fact that Clause 5 of the agreement expressly reserved to the company the right of quoting and securing orders direct from parties in the territory for which the assessee was appointed as the distributor leaving to the company the discretion to give an allowance to the distributor in respect of such direct sales. If Clause 4 regulated direct sales by the company, then it would have been wholly unnecessary to make an express provision in Clause 5 giving to the company the right of securing direct orders. The sales tax authorities found that all orders secured by the assessee were countersigned by the assessee and that he had also filed suits against several customers for recovery of the price of goods supplied to them. Learned counsel for the assessee suggested that these suits had been filed by the assessee on behalf of the Gulf Oil Company under a power of attorney. But there is nothing on record to show that in these suits the plaintiff is the Gulf Oil Company and not the assessee.
8. We are unable to find anything in the terms of any clause of the agreement or in the course of business of the assessee even to suggest that in regard to the transactions in question the customer purchasing the goods in the territory for which the assessee was appointed as distributor was primarily liable to the oil company for the payment of price and that the asseesee undertook to discharge the customer's liability if the latter failed to do so himself. There is also nothing to show that it was at the instance of the customer that the assessee assumed this liability towards the company. The Board of Revenue thought that the countersigning of all orders by the distributor from his customers in token of the distributor's responsibility and liability to the company for the price of the goods and the provision in Clause 4 that the distributor shall be responsible for payment to the company for all orders accepted by him and all sales by the distributor will be made by him as goods belonging to manufactured or imported by the company indicated that all that the assessee did was to bring the company and the customer together and to guarantee to the company the payment of the price by the customer. We are unable to see how this conclusion follows from the terms of Clause 4. Indeed the arrangement mentioned in Clause 4 about the acceptanace of orders by the distributor, the liability of the distributor for payment to the company for all orders accepted by him, and the execution of the orders by the company lead to the contrary conclusion, viz., that in regard to these transactions the position of the distributor was that of a buyer of goods from the company who then sold it to his customers. The direction in Clause 4 that all sales by the distributor will be made by him as goods belonging to, manufactured or imported by the company is only to ensure that the distributor does not sell and pass on the goods purchased by him from the company as of any other manufacturer or importer. That direction does not mean that the property in the company's goods never vested in the distributor and that he did not have the authority to transfer the property in. the goods to the buyer and, therefore, the assessee was no more than a gurantee-broker.
9. In coming to the conclusion that it did, the Board of Revenue ignored altogether the finding of the taxing authorities that all orders had been countersigned by the distributor and that he had also filed suits against some customers for recovery of the price of the goods. The Board relied solely on Clause 4 of the agreement and from it alone drew the inference that the assessee was a guarantee-broker. The Board found support for this inference in Govindprasad Gour v. Commissioner of Sales Tax M.C.C. No. 210 of 1952 decided on 8th December, 1953 and C. P. Coal Trading and Distributing Company v. Commissioner of Sales Tax I.L.R. 1954 Nag. 355. These cases are not in point here. They are distinguishable on facts. In those cases the question that was considered was about the position of a person who functioned to procure customers for the coal of certain collieries and who was, under an agreement with the colliery company, made liable for payment of the price by the customers for the coal sold to them. The assessee in those cases was held to be no more than a guarantee-broker. The question in those cases turned solely on Clause 6 of the Colliery Control Order, 1945, under which coal was delivered to a consumer at a rate fixed by the order when a colliery owner signified his willingness to sell direct to a consumer and an allotment had been made by the Deputy Coal Commissioner to the consumer with his consent for such direct sale. Under the Control Order a person could not purchase from a colliery coal on certain favourable or advantageous terms and then sell it to his customers. The sale had to be directly by the colliery owner to the consumer. In C.P. Coal Trading and Distributing Company v. Commissioner of Sales Tax I.L.R. 1954 Nag. 355 the consignments were addressed to by the company to the consumers and the railway receipts were also sent directly to them, In Govindprasad Gour's case, M.C.C. No. 210 of 1952, decided on 8th December, 1953 which only followed the case of C. P. Coal Trading and Distributing Company v. Commissioner of Sales Tax I.L.R. 1954 Nag. 355 the assessee did the business of procuring coal from M/s. Shaw Wallace Limited, the colliery owners, for his customers. M/s. Shaw Wallace Limited no doubt sent the railway receipts as well as the consolidated bills to the assessee who made out fresh bills in the names of the consumers of coal adding his own commission permissible under Clause 6(2) of the Colliery Control Order, 1945. But the decision in those cases that the assessee was no more than a guarantee-broker was reached not on the consideration whether the consignments were despatched directly to the consumers or whether the railway receipts and the bills were sent to the assessee or to the consumers. The decision in those cases turned solely on Clause 6 of the Colliery Control Order, 1945, under which the sale of coal was direct by the colliery owner to the consumer.
10. Shri Dabir, learned counsel for the assessee, placed reliance on Mahadayal v. Commercial Tax Officer A.I.R. 1958 S.C. 667 to support his contention that even in the circumstances envisaged by Clause 4 of the agreement the assessee could not be regarded as a dealer in respect of the disputed transactions. The distinction between the presept case and the case of Mahadayal, A.I R. 1958 S C. 667 is that in the latter case though the Kanpur Woollen Mills supplied goods to the customers in pursuance of the orders placed by the assessee to the mills, the invoices were all made out in the names of the customers and the relevant documents were negotiated by the mills with the customers. It was the customer who realised the documents from the bank on payment, and the sale price of the goods was thus received by the mills through the bank. At no time whatever did the assessee handle the goods or receive the sale price of the goods. It was in these circumstances that it was held by the Supreme Court that the assessee before them was not a dealer under the Bengal Finance (Sales Tax) Act, 1941. Here the disputed transactions were effected under the arrangement mentioned in Clause (4) of the agreement which is altogether different from that which the Supreme Court considered in Mahadayal's case A.I R. 1958 S C. 667.
11. In Ramchandra v. Commissioner of Sales Tax 1957 M.P.C. 593 where a person was appointed as a selling agent for a bidi manufacturer in Sagar on condition somewhat similar to those on which the assessee here was appointed as distributor, it was held that the selling agent 'was only a favoured buyer'. The position of the assessee Dayaram Rathod is not different. In Hope P. & Co. v. Hamel & Horley, Ltd. A.I.R. 1925 P.C. 161 it was observed by the Privy Council-
In many trades-particulary, for instance, in the motor car trade-the so-called agent is merely a favoured and favouring buyer, one who under an overriding contract undertakes to do his best to find a market for the manufacturer's stock, who is given some special advantages, such as a special discount or preference in complying with his orders ; but who in each particular contract acts as a buyer from the manufacturer and sells at whatever price he can get, unless-as is sometimes the case-he is by a special provision in the overriding contract forbidden to sell too cheaply or required not to spoil the market by asking too much.
These observations adequately sum up the position of the assessee as one who bought goods from the Gulf Oil Company and sold them to his customers at prices fixed according to the special provision in the agreement. We are clear in our mind that in regard to the disputed transactions the assessee bought goods from the oil company and then sold them to his customers. He is therefore, a 'dealer' within the meaning of Section 2(c) of the Act and liable to pay sales tax on the transactions in question.
12. The contention of ShriDabir, learned counsel for the assessee, that the finding of the Board of Revenue that the assessee is a guarantee-broker is one fact which we cannot disturb in the reference is unsubstantial. The Board of Revenue itself has referred to this Court for decision, as a question of law, the question whether the assessee is a dealer under Section 2(c) of the Act. This necessarily involves a consideration of the question whether in regard to the disputed transactions the assessee is a guarantee-broker or a person who sold the goods to his customers. In holding that the assessee is not a guarantee-broker, we have not disturbed the facts found by the sales tax authorities as to the course of business of the assessee in regard to the transactions in question. These facts have been accepted as final. The question whether the assessee is or is not a guarantee-broker or a dealer depends on the legal effect of the findings reached by the sales tax authorities and on the construction of the terms of the agreement dated the 10th September, 1952, and the ultimate conclusion reached by us is on the application of legal principles to the basic findings as to the course of business. The question posed by the Board of Revenue is, therefore, clearly a question of law (see Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax A.I.R. 1957 S.C. 49.
15. Our answers to the questions referred to are, therefore, as follows:-
(a) Clauses 2 and 4 of the agreement do not relate to different types of transactions.
(b) The assessee is a dealer within the meaning of Section 2(c) of the M.P. Sales Tax Act, 1947, in respect of the transactions under Clause 4 and those in question.
There shall be no order about costs.