R.L. Narasimham, C.J.
1. The following two questions have been referred to this Court by the Member, Board of Revenue, Orissa, under Section 24(1) of the Orissa Sales Tax Act:
(1) Whether in the facts and circumstances of the case, the petitioner is a 'dealer' within the meaning of Section 2(c) of the Orissa Sales Tax Act, 1947, in respect of the supply of second-hand gunny bags to Messrs Orissa Cement Ltd.
(2) Whether in the facts and circumstances of the case and on the construction of the agreement of agency, the petitioner's purchase of second-hand empty gunny bags from the Hirakud Dam Project Authorities and subsequently supplied to Orissa Cement Ltd., amount to 'sale' within the meaning of the Orissa Sales Tax Act, 1947, so as to attract the liability of the petitioner under the Act.
2. During the year 1952-53 Messrs Orissa Cement Ltd., Rajgangpur, (hereinafter referred to as Orissa Cement) used to supply cement to Hirakud Dam Project Authorities (hereinafter referred to as the Project authorities) in gunny bags bearing the trade mark 'Konarak Cement'. With a view to secure uninterrupted supply of cement they entered into an agreement with the project authorities for the purchase of their old second-hand serviceable gunny bags so that fresh cement may be supplied in those bags also. The price of these serviceable second-hand gunny bags was originally fixed at Rs. 28 per hundred bags but subsequently it was reduced to Rs. 25 per hundred bags. The petitioner, one Sreelal Agarwalla (hereinafter referred to as Sreelal) who is a businessman of Sambalpur town was later engaged as a 'middleman' (to use a neutral expression in view of the controversy regarding his status) by Orissa Cement to purchase serviceable secondhand gunny bags from the Project authorities and to deliver them at their factory premises at Rajgangpur. It was agreed between Sreelal and Orissa Cement that in addition to the contract price of Rs. 28 per hundred bags Sreelal would get an additional sum of Rs. 7 per hundred bags to cover all kinds of expenses, including commission. He was required to take delivery of the bags from the Project authorities after paying the price fixed and then to transport them to Rajgangpur by rail and deliver them to Orissa Cement, charging them at Rs. 7 per hundred bags over and above the price actually paid by him for the bags to the Project authorities. On the 24th July, 1952, Orissa Cement informed the Project authorities (vide exhibit K) that Sreelal was appointed their agent for the collection of second-hand gunny bags bearing the mark 'Konarak Cement' and requesting them to afford all facilities to him. The terms of the agreement between Sreelal and Orissa Cement were reduced to writing as per exhibit C. As the disposal of this reference depends on the true construction of this agreement, I may quote the same in full :-
'Orissa Cement Limited, Rajgangpur.
8th/9th August 1952
Messrs Sreelal Aggarwal,
Barabazar, Sambalpur Town.
Re : Agency for collection of serviceable second-hand Konarak brand cement gunny bags from Hirakud.
We have much pleasure in appointing you as our agent for the collection of serviceable second-hand Konarak brand cement gunny bags out of the supplies we are making to the Hirakud Dam Project, on the following terms and conditions :-
(1) That you will collect serviceable, second-hand Konarak brand cement gunny bags at your expense and on payment of the price of Rs. 28 per hundred bags fixed by the Executive Engineer Stores Division, Hirakud Dam Project, Hirakud.
(2) That the bags should not be waterlogged and should be free from any defects and of 112 lbs. capacity.
(3) That the contract rate for gunny bags is Rs. 28 (twenty-eight only) per hundred bags F.O.R. Orissa Cement siding Rajgangpur subject to selection at your end, plus Rs. 7 to cover your commission, collection charges, transport, railway freight and other miscellaneous expenses necessary therefor.
(4) That the bags should be consigned in our name to Orissa Cement Ltd., Rajgangpur, at railway risk freight paid.
(5) The bags will be stored at our works and a report thereon will be sent to you intimating as to the number of bags found serviceable by us and the number rejected. As soon as you receive the sorting report from us, you would submit your bill to us in triplicate for the number of serviceable bags accepted by us at the above rate, payment for which would be made by cheque on the Imperial Bank of India, Calcutta.
(6) All rejected bags should be removed within two months of the issue of the sorting report and they will remain at your risk until so removed. After two months no claim whatsoever will, in regard to such bags, lie against us.
(7) The works manager's decision as to the quality of the bags accepted or rejected and the quality of the bags received at the works shall be final and binding on you. No objection or any other plea for reconsideration of this decision will be entertained by us.
(8) Please note that bags made from hessian cloth are not to be supplied.
Kindly acknowledge and convey your acceptance of these terms and conditions.
For Orissa Cement Limited,
Sd. Illegible, Secretary'.
N.B.-The price payable to the Project authorities and the commission payable to Sreelal were subsequently reduced, but this does not affect the main question involved in this case.
3. On behalf of Sreelal it was contended by Mr. Sidhartha Roy that he was merely an agent of Orissa Cement, that the purchase of serviceable second-hand gunny bags by him from the Project authorities was made on behalf of Orissa Cement who was his principal and that the extra amount of Rs. 7 per hundred bags, over and above the price actually paid by him to the Project authorities was in reality commission for services rendered by him on their behalf. It was accordingly urged that there was no 'sale' between Sreelal on the one hand and Orissa Cement on the other and that consequently he was not liable to pay any sales tax in respect of the transaction of delivery of the second hand gunny bags at the factory premises of Orissa Cement at Rajgangpur. On behalf of Sreelal strong reliance was placed on the words used in the agreement (exhibit C) to the effect that he was appointed an 'agent' and the description of the money paid to him as 'commission'. On behalf of the Sales Tax Department, on the other hand, it was urged that there were two distinct transactions of sale namely one by the Project authorities to Sreelal and another, a re-sale by Sreelal to Orissa Cement at Rajgangpur though a clever attempt was made to evade payment of sales tax by using expressions like 'agency', 'agreement', 'commission' etc. in exhibit C with a view to conceal the real nature of the transaction. It was urged on behalf of the department that if the substance of the agreement between the two parties as shown in exhibit C be carefully ascertained it would be clear that the transaction was nothing else but a sale by Sreelal to Orissa Cement and that consequently Sreelal was liable to pay sales tax in respect of these transactions.
4. The question thus depends on the true relationship between Sreelal and Orissa Cement, i.e., whether it was that of agent and principal or that of buyer and seller. This has to be ascertained from a proper construction of the agreement, exhibit C, and the surrounding circumstances. As pointed out in the well known case of In re Neville, (1870) L. R. 6 Ch. App. 397, 399 too much importance need not be attached to the expressions 'agent', 'commission' etc. occurring in the document. 'There is no magic in the word 'agency'. It is often used in commercial matters where the real relationship is that of vendor and purchaser'. Here, apart from the fact that the parties were businessmen dealing with commercial matters there is the additional circumstance that there might be an attempt to conceal the real nature of the transaction with a view to evade payment of sales tax because both parties knew that sales tax would be payable if the transaction was really a sale. 'The facts must speak for themselves and if those facts show a state of things different to a simple arrangement between principal and agent then the effect of those facts will not be altered simply because the language of agency has been used in a loose manner' : Per Lord Chancellor in Towle & Co. v. White and Ors. (1873) 29 L.T. 78.
5. It is true that the main agreement was between the Project authorities and Orissa Cement for purchase of second-hand serviceable gunny bags bearing the mark 'Konarak Cement' from the Project authorities with a view to refill those bags with cement and supply the same to the Project authorities. As Rajgangpur, where the factory premises are located, is more than 90 miles away from Hirakud (near Sambalpur) it was obviously necessary for Orissa Cement to engage a middleman to facilitate the purchase and collection of the bags at Hirakud and their delivery at Rajgangpur. The middleman may be either an agent of Orissa Cement as alleged by the petitioner; or else, he may also be an intermediate buyer and seller as alleged by the Sales Tax Authorities. Similarly, for the purpose of facilitating prompt payment of the full price to the Project authorities Orissa Cement may give the middleman financial accommodation by authorising the Project authorities to deduct the price of second-hand bags from the amount due to them for cement supplied. Again, their efforts to arrange for the supply of wagons from Sambalpur railway station for transporting the gunny bags to Rajgang pur railway station are equally consistent with Sreelal's position as a seller, and do not necessarily indicate that he was only an agent. Thus most of the circumstances on which both parties have relied are some what equivocal and are equally consistent with the rival contentions put forward by them.
6. But there is one important distinction between the relationship of agent and principal on the one hand and that of buyer and seller on the other which is, I think, decisive in this case. The seller remains the owner of the goods until the property in the goods passes to the buyer. Till then the risk remains with the seller because risk usually follows property. Hence, though Orissa Cement may not be unwilling to help Sreelal to evade payment of sales tax by using expressions like 'agency', 'commission' etc. in exhibit C, they would not go to the extent of undertaking the entire risk in respect of the goods so long as the goods remained in the possession of Sreelal unless he is, in reality, their agent and not a seller. As between an agent and a principal, the property in the goods vests in the principal and consequently the risk also remains with him though the agent must take proper care of. the same as a bailee. The terms of the agreement, exhibit C, must therefore be carefully scrutinised with a view to ascertain how the parties intended to apportion the risk at the various stages of the transaction.
7. Paragraphs 1 to 4 of the agreement (exhibit C) are equivocal and are consistent with the existence of both classes of relationships. Paragraphs 5 and 6 are of utmost importance. There Orissa Cement expressly says that the gunny bags, after arrival at Rajgangpur will be sorted out and scrutinised and that only those bags which the works manager of Orissa Cement considers to be serviceable would be accepted by the company and that the rest would be rejected. Paragraph 6 further says that the rejected gunny bags should be removed by Sreelal within two months from the premises of Orissa Cement where they will remain at Sreelal's risk until such removal. It further says that after the expiry of two months 'no claim whatsoever will, in regard to such bags, lie against us'. This clause is of the usual pattern that is generally found in an agreement between buyer and seller for the sale of ascertained goods. In such a case, when the goods are delivered by the seller to the buyer the latter before appropriating them towards the contract is entitled first to examine whether the goods answer to the description stipulated and until such examination takes place and the buyer is satisfied, the appropriation is not complete and there is no transfer of property in the goods. If, after such examination, he does not accept the goods either in whole or in part, then Sections 42 and 43 of the Sale of Goods Act require him to intimate to the seller that he refuses to accept them and he is also required to give reasonable time to the seller to take the goods away. It is with a view to comply with this requirement that a clause of the type contained in paragraph 6 of exhibit C is generally inserted. The words 'the goods will remain at your risk until removal' and the further words that if the goods are not removed within two months 'no claim whatsoever in regard to those bags, will lie against us' (meaning Orissa Cement) clearly indicate that it was understood between the parties (Sreelal and Orissa Cement) that the title to the property in the rejected gunny bags would remain with the supplier namely Sreelal. This is inconsistent with his position as an agent of Orissa Cement. It should be further noticed that in exhibit C-10, Orissa Cement had clearly told the Project authorities that Sreelal was appointed their agent for collection of second-hand Konarak brand cement bags on payment and that all facilities should be afforded to him for that purpose. If Sreelal was merely an agent of Orissa Cement the property in the goods (gunny bags) passed to the Cement Company at Hirakud as soon as Sreelal took delivery of the same from the project authorities. But the stipulation in paragraph 6 to the effect that at Rajgangpur the gunny bags would be further examined by the works manager and those considered unserviceable would be rejected (may be either wholly or in part) and that Sreelal should take them away within two months during which period they would remain in the premises of the Orissa Cement at his risk, and that thereafter he could have no claim whatsoever against Orissa Cement, are quite inconsistent with his position as an agent.
8. In this connection, the letter exhibit L-6 dated 20th June, 1952, sent by Sreelal to one Mr. Dutta an officer of Orissa Cement may be noticed. There he uses the following language : -
Myself, and Shri K. Dutta have been to the right side dam also but there are about 2 to 3 thousand bags available. Therefore it will not be a full wagon load. So after some days, when more bags will be avail-able I will get those sorted and send you the same in full wagon load. Further I have seen to its expenses, such as sorting, bundling, carriage to Sambalpur, loading, unloading, despatching expenses, supervisory charges etc. railway freight and risk of rejection of some bags in your factory etc. All these expenses will come to about Rs. 5-8-0 per hundred bags. So I think the rate of Rs. 35 per hundred bags F.O.R. your factory, is quite reasonable and Calcutta office have also purchased at the above rate. I would therefore request you to accept the rate of Rs. 35 per hundred bags and confirm it.
It will be noticed that while referring to extra expenses for sorting, bundling, loading, unloading, despatching expenses, supervisory charges, railway freight and risk of rejection of some bags by Orissa Cement, Sreelal ultimately claims a rate of Rs. 35 per hundred bags F.O.R. Orissa Cement and further adds that the Calcutta office also 'purchased at the above rate.' He accordingly asks Orissa Cement to confirm the rate of Rs. 35 per hundred bags. The use of the expression 'rate' and the reference to 'purchase' by the Calcutta office to some extent support the department's view that, as between Sreelal and Orissa Cement, the transaction was essentially in the nature of a 'sale' and that in the subsequent correspondence words like 'agency', 'commission' etc. were used so as to make it appear to be one between a principal and his agent.
9. Mr. Roy made several unsuccessful, though ingenious attempts, to reconcile paragraphs 5 and 6 of the agreement (exhibit C) with Sreelal's position as an agent. He urged that though Sreelal had general authority to buy from the Project authorities those gunny bags which he considered serviceable, nevertheless by virture of the agreement between him and Orissa Cement as embodied in paragraph 5, the ultimate test of serviceability was agreed to be applied by Orissa Cement's officers at Rajgangpur. Hence, according to him, if some of the gunny bags were eventually pronounced to be unserviceable the only consequence would be that his purchase of the same from the Project authorities would be deemed to be beyond the scope of the authority given to him by the contract and, consequently, under Section 227 of the Contract Act the principal (Orissa Cement) was not bound by the action of Sreelal in respect of the unserviceable bags. Mr. Roy however conceded that title to the goods passed from the Project authorities to Orissa Cement, as soon as Sreelal took delivery of the same at Hirakud on payment of the price. But according to him such transfor of title was the inevitable consequence of the provisions of Section 237 of that Act by which the ostensible authority granted to Sreelal by Orissa Cement would bind the principal even though the agent might have acted beyond the scope of that authority.
10. In my opinion neither Section 227 nor Section 237 of the Contract Act has any application here. The simple question is : what was the scope and extent of the authority given to Sreelal by Orissa Cement On that point the letters, exhibits K and C-10, from Orissa Cement to the Project authorities, are clear. Sreelal was appointed as the agent of Orissa Cement for collection of serviceable second-hand gunny bags marked 'Konarak Cement', on payment of their price. No objective test was laid down to determine the serviceability of the bags, in the correspondence between the Project authorities and Orissa Cement and it was left to the subjective satisfaction and good judgment of Sreelal. If, as contended for him, Sreelal was really an agent of Orissa Cement the principles embodied in Section 212 of the Contract Act would apply and he would be required to exercise as much skill as is generally possessed by persons engaged in the business of selecting serviceable gunny bags. Hence, when he made his selection at Hirakud and paid the stipulated price to the Project authorities, he must be held to have acted within the scope of the authority given to him by his principal. Section 227 or Section 237 of the Contract Act has therefore no application. Doubtless, if it is found that due to some error of judgment on his part some of the gunny bags selected by him were eventually found to be unserviceable and were ultimately rejected, he may be liable to make good the loss or damage caused by his negligence or want of skill, as provided in Section 212 of the Contract Act. Hence, if Sreelal was really an agent of Orissa Cement one would have expected a provision in exhibit C regarding the quantum of loss or damage payable if it is eventually found that some of the gunny bags were rejected as unserviceable on scrutiny at Rajgangpur. Such a provision is significantly absent in the agreement. Moreover, there can be no question of such rejected bags remaining in the premises of Orissa Cement at the risk of Sreelal or of his having any claim against Orissa Cement in respect of those bags because ex-hypothesi he (in his capacity as agent) could have had no property rights in the gunny bags and he could not properly have any claim in respect of the same. Realising this difficulty Mr. Roy contended that paragraph 6 was put in exhibit C by way of abundant caution so as to retain in the principal the right to reject the goods with a view to prevent the agent from saying later on that he 'ratified' his action in buying unserviceable gunny bags also. The question of ratification is academic here. That would arise only when the agent acts in excess of the authority granted to him by, or without the knowledge of, the principal. But here Sreelal must be held to have acted within the scope of his authority when he purchased the bags from the Project authorities after paying for the same.
11. It was then urged that the agent has a lien on the goods until his commission is fully paid and that paragraph 6 of the agreement (exhibit C) may be construed, as merely affirming his right of lien on the goods. This argument is also futile because once the goods were delivered at the premises of Orissa Cement at Rajgangpur in pursuance of the contract, the right of lien disappeared because Sreelal had parted with possession. On the theory of agency Orissa Cement was the full owner of the goods and that ownership could not be re-transferred to the agent by inserting a provision of the type found in paragraph 6.
12. Mr. Roy then urged that the said clause may be explained on the assumption that after rejection the goods were practically given to the agent as a gift and that he was entitled to take them away within two months from the date of rejection. This attractive argument about subsequent gifting of the rejected goods to the agent by the owner is also unsustainable, because there can be no 'claim' in respect of the gifted goods as between the donee and the donor prior to the acceptance of the goods.
13. Thus, though Mr. Roy tried his best to reconcile the provisions contained in paragraphs 5 and 6 of the agreement (exhibit C) with the position of Sreelal as an agent, we arc not convinced that the relation ship of principal and agent subsisted between Sreelal and Orissa Cement. These two clauses show that though Orissa Cement was not unwilling to oblige Sreelal by using equivocal expressions with a view to enable him to evade payment of sales tax it was not prepared to take the risk which would necessarily fall on it if Sreelal was in reality its agent and not a seller. Clauses 5 and 6 show that the property in the goods remained with Sreelal till delivery of the bags at Rajgangpur and their acceptance by the Orissa Cement, and the transaction between the two parties was, in reality one between a seller and buyer. I may also in this connection refer to the observations of the Supreme Court in Commissioner of Sales Tax v. Husseinali  10 S.T.C. 297 where the property in goods was held to be transferred to the buyer at the place where the goods were examined on arrival and where the right was reserved to reject the goods which were found not to be in accordance with the specifications.
14. Mr. Roy cited the well known case of Cassaboglou v. Gibbs (1873) 11 Q.B.D. 797 in order to show that there was the relationship of principal and agent. But, in my opinion, this decision has no application to the facts of the present case. It only lays down the principle that the right of stoppage in transitu which is ordinarily cxercisable by a seller while the goods are in transit to the buyer may also be exercised by an agent. It is of no help in considering whether in the circumstances of a particular case a person is an agent or seller.
15. The learned Member, Board of Revenue, appears to have committed a slight error in holding that Sreelal was engaged to purchase not only serviceable gunny bags but also unserviceable gunny bags which were quoted at a much lower rate, viz., Rs. 9 per hundred (see exhibit C-2) but this error does not affect the real position inasmuch as the true relationship between the parties must be ascertained by a construction of the agreement, exhibit C, especially of paragraphs 5 and 6.
16. For these reasons the application is rejected, with costs. The questions are answered as follows :-
Question No. (1)-The answer is in the affirmative.
Question No. (2)-The transaction between Sreelal (petitioner) and Orissa Cement was a 'sale' within the meaning of the Orissa Sales Tax Act.
Hearing fee is assessed at Rs. 100 (one hundred only).
R.K. Das, J.
17. I agree.