1. This is an appeal against, a decision of the Collector of Sales Tax, Bombay, made under Section 27 of the Bombay Sales Tax Act, 1953, that the supply of the goods by the appellants Messrs May & Baker Ltd. to Messrs May & Baker (India) Ltd., (hereinafter referred to as the company) under six specified consignment notes constituted sales for the purposes of the said Act. The firm of the company was established in Bombay in 1928. It used to receive goods manufactured in the appellants' factory in Dagenham, England, and to sell them. In 1944 the method of supply was altered to a system on a consignment basis. On 31st March, 1944, the appellants sent a cable to the company in which it was stated, "we propose take over your stocks specialities chemicals as at April first, and make all future supplies on consignment basis.... System we propose operating is as follows. For supplies specialities will issue consignment invoices for customs purposes at arrange consignment value basis on current domestic valueless commission plus cases freight marine and war risk insurance...when goods sold or leave your branch sales offices you will credit us with consignment value and debit us with your commission separately". In 1948-49 the appellants built their own factory at Worli at Bombay.
Since then the company has been receiving the bulk of the supplies from this factory and although some supplies used to come directly from England, we are not concerned with such supplies in this case. The company obtained a registration certificate under the Act of 1946, and the factory at Worli also obtained such a certificate. The company has become responsible for the marketing of the whole production of the Worli factory. There was no formal agreement between the company and the appellants, but the practice is that the company intimates its likely requirements from time to time and goods are consigned to the company under a consignment note in which no value of the goods is stated. Sales are effected by the company at list prices fixed in advance by the manufacturers. Products sold by the company bear labels in which the appellants are shown as the manufacturers and the company as the distributors.
2. On the 1st January, 1953, the appellants wrote a letter marked "strictly confidential" to the Accountant of the company from which the following extracts appear to 'be relevant : "We have received your letter dated the 25th November, 1952, from which we note that on the 1st July, 1952, the form of the Reserve Bank Statement on the basis of which permission to remit is- given, was changed". "To deal with the situation created by the change made by the Reserve Bank we suggest you should arrange a meeting with some senior official of the Reserve Bank and describe to him the difficulties which you and we are facing as a result of the form of the- statements now required". "It will first be necessary to explain in detail the method of trading which we use and the reasons why we prefer to use this method. Your explanation should therefore be on the following lines :- (a) May & Baker Ltd., Dagenham, are sending to May & Baker (India) Ltd., supplies of various goods in a saleable condition. They are also sending to May & Baker Ltd., Worli, supplies of raw materials and intermediates for processing and packaging into other goods for ultimate sale in India. In both cases, the consignment method of trading is used, both for supplies sent from Dagenham and for the transfer of finished goods from May & Baker, Worli, to May & Baker (India) Ltd. (b) You will then explain that our reason for having two companies operating in India is that we regard the functions of manufacturing and of selling as being quite different in nature, scope and responsibility the former requiring technical, engineering and scientific staff and the other more especially a highly specialised sales and publicity staff. May & Baker (India) Ltd., is a company which has always had selling as its principal object and we do not consider it desirable that its energies should be diverted from this principal purpose to grapple with the very many- difficult technical problems associated with the manufacture of drugs and medicines.
Furthermore, we regard it as of the utmost importance that there should be the closest liaison between our various production staff wherever in the world our factories happen to be situated. It appears to us, therefore, not only logical but essential that those highly qualified and experienced experts responsible for production at our main factory at Dagenham should also be directly responsible for supervising and controlling our manufacturing operations elsewhere.
(c) On the second point, i.e., consignment trading, you should state that we use this method primarily for its . great internal convenience but also because we do not wish to take credit in our accounts for sales of goods until, so far as our ground is concerned, these goods have in fact been sold. It will be appreciated that if the firm account method of trading were used, goods simply sent to M.B.I, would appear in the May & Baker Ltd. accounts as 'sales'. In actual fact, no sale would really take place until the goods were effectively sold by May & Baker (India) Ltd., perhaps six months or a year later. It follows that if the firm account method were used we should be paying tax in the United Kingdom on 'profits' before they were in fact realised.
For these reasons, therefore, we greatly prefer to use the consignment method of trading in spite of the fact that it seems complicated and involves us in a lot of work. It must be made perfectly clear to the officials to whom you speak, that these are our sole reasons for choosing to trading as we do. They are amply sufficient reasons and there are no others.
It has not been established on behalf of the Government that this letter does not reflect the true state of affairs as existing between the appellants and the company.
3. The appellants have contended that they have appointed the company as their selling agents, that there is no sale of any goods from them to the company and that the goods remain the property of the appellants until they are sold by the company to customers. They have relied on the following circumstances in respect of this contention : (1) the appellants have a right at all times before sale to recall from the company any goods consigned for sale, such right showing that the property remains up to the time of the sale in the appellants; and (2) although the company insures the goods on receipt, the cost of insurance premia are debited to the appellants by the company ; (3) the company receives its commission and credits to the appellants the price of the goods sold as soon as the sale takes place, even when the price of the goods has not been realised by the company. The Collector has stated that the right to recall goods is not compatible with the vesting of the property in the goods in the company when they are supplied and that the evidence as to insurance "may be said to support the view that the goods remained in the ownership of Messrs May & Baker Ltd., at least until the point of time when the sale took place at the hands of Messrs May & Baker (India) Ltd." According to the Collector, this view is supported by the decision of the Nagpur High Court in the case of Kalyanji v. Tikaram A.I.R. 1938 Nag. 254 and by the decision of the Madras High Court in the case of Kandula Radhakrishna Rao v. The Province of Madras  3 S.T.C. 121. The following considerations, in the Collector's opinion, support the view that he has taken, as commission agents vis-a-vis Messrs May & Baker Ltd. The company has the authority to sell in its own name; the invoices are issued by the company in its own name and not on behalf of the appellants ; the company and not the appellants can sue or be sued by its customers ; the appellants have no right to say to whom the company should sell the goods or whether it should sell or not sell to a particular party ; and the privity of contract is between the company and the customer. "This argues that at some point of time the title in the goods has passed from Messrs May & Baker Ltd., to Messrs May & Baker (India) Ltd., and that point of time must be held to occur when the sale of Messrs May & Baker (India) Ltd., to the customer takes place".
4. In the case of Kalyanji v. Tikaram A.I.R. 1938 Nag. 254, the plaintiff was a merchant who dealt in grain and cotton seed. The defendants were also merchants who acted as commission agents in respect of these commodities. The arrangement between them was this.
The plaintiff used to send the defendants consignments of these goods from time to time. The defendants were to keep these goods with them and await instructions from the plaintiff about the sale. On receipt of instructions from the plaintiff, the defendants sold the goods and remitted the sale proceeds to the plaintiff in due course less their commission charges. Bose, J., held that so far as the case was concerned, the defendants were acting as agents on behalf of themselves and that the intention was that the plaintiff would sell to the commission agents, and the commission agents to persons to whom they sold. He made the following observations : "Commission agents are agents within Section 182 but are not agents pure and simple. They are agents up to a point and to that extent they stand in a position of active confidence towards their principals, but beyond that they are not agents in the real sense of the term and the relationship between the parties from then on is one of debtor and creditor. The test to my mind is this ; does the commission agent when he sells have authority to sell in his own name Has he authority in his own right to pass a valid title If he has then he is acting as a principal vis-a-vis the purchasers and not merely as an agent and therefore from that point on he is a debtor of his erstwhile principal and not merely an agent". The learned Judge took judicial notice of the fact that commission agents dealt with a large number of what might be called principals scattered throughout India and sometimes abroad; and he observed, "In general there is nothing to prevent commission agents from purchasing the commodities themselves at the price named by their principals and then selling thereafter at a profit to themselves. This profit they would be entitled to retain. A mere agent could not do that. Looking then to the general dealing between the parties, looking to the fact that these conditions are the usual conditions upon which commission agents operate and to the fact that the defendants were themselves grain and seed merchants actually running a shop, I am clear that the understanding between the parties was that the defendants were to sell the grain and cotton seed in their own right and be responsible to the plaintiff as debtors for the sale proceeds less their agency charges".
Thus in this case it was held that the property in the goods was transferred to the defendants prior to the sale of those goods by them to their customers. Sub-section (1) of Section 19 of the Indian Sale of Goods Act provides, "Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred." In the case of Kalyanji v. Tikaram A.I.R. 1938 Nag. 254 the learned Judge was clear that the "understanding" between the parties was that the defendants were to sell "in their own right". The question arises whether such an understanding can be spell: out in the present case.
5. In this case there is no general commission agent nor is it a fact that both the parties deal in the sale of the same kind of commodities.
It is true that, as the Collector of Sales Tax has noticed, there is noting in the memorandum of association of the company which precludes its acting as distributors for any other manufacturer, but the fact remains that this has not been done so far and that it has been acting as only the selling agent of the appellants. It is also particularly to be observed that in Kalyanji v. Tikaram A.I.R. 1938 Nag. 254 there was no right in the plaintiff to recall the goods consigned at any time prior to the sale.
6. In the case of Kandula Radhakrishna Rao v. The Province of Madras  3 S.T.C. 121 the decision given by the Nagpur High Court in Kalyanji v. Tikaram A.I.R. 1938 Nag. 254 has been followed. Here also one party, (plaintiffs) carried on independent business of their own and also a commission business. "It was indeed common ground and amply supported by the evidence that the plaintiffs were acting as agents for several seller principals who entrusted them with goods for sale at specified prices". The evidence showed that the firm of the plaintiffs had 100 to 200 principals, 90 per cent, of whom resided outside the place of business. The learned Judges, after referring to the provisions of Sections 18 to 26 of the Indian Sale of Goods Act, as embodying the general and special rules relating to the transfer of property as between seller and buyer, and Sections 27 to 30, as embodying the rules relating to the transfer of title, observed : "This distinction made between property in the goods and title to the goods is not without significance. In law there can be a transfer of property in goods without a transfer of title to them. A sale of goods refers to the transfer of property irrespective of the fact whether the title also is transferred or not. The language of Section 27 clearly contemplates' a sale by a person who is not the owner of the goods." The learned Judges accepted the mercantile practice that the commission agent has the control over or possession of the goods and he has the authority from the owner of the goods to pass the property in and title to the goods. The learned Chief Justice said that a commission agent doing this kind of business would, in his opinion, fall within the definition of "dealer" in the Sales Tax Act. At the same time he agreed with the decision of Satyanarayana Rao, J., in the case of Government of Madras v. Veerabhadrappa I.L.R. (1951) Mad. 257, as regards the following proposition : "The mere fact that an agent, who is entrusted with goods for sale, sells them without disclosing who the principal is, does not make the transaction a sale of the agent's goods nor does it convert the relationship between him and his principal into one of vendor and purchaser.
7. In this case no mercantile practice of commission agents can be relied upon. There is a unique power of recall of goods in this case retained by the appellants, showing that the property remains with the appellants till a sale actually takes place. The question arises, what is the point of time, when, according to the Collector, the title or property in the goods passes from the appellants to the company.
According to the Collector that point of time must be held to occur when the sale to a customer by the company takes place. It is difficult to concede that two sales take place at the identical moment. Realising this difficulty, Mr. Madan on behalf of the opponent has contended that the sale to the company should be deemed to take place "a fraction of a second" before the sale by the company to a customer. It is difficult to concede that the "understanding" between the parties, to use the expression used by Bose, J., was that two sales should take place with an interval of "a fraction of a second" between them. It would seem that as the appellants would have the power to recall the goods even at the moment regarded as the moment of sale to the company, no such sale "a fraction of a second" before the sale to the customer, as was suggested, could actually take place. It can hardly be argued that at that moment the power in the appellants to recall vanishes or is suspended. This feature in this case eminently distinguishes it from the cases of Kalyanji v. Tikaram A.I.R. 1938 Nag. 254 and Radhakrishna Rao v. Province of Madras  3 S.T.C. 121.
8. Mr. Madan relied on W.T. Lamb & Sons v. Coring Brick Co.  K.B.710 In that case by an agreement in writing certain manufacturers of bricks and other building materials appointed a firm of merchants as their sole selling agents of bricks and other materials manufactured at their works. While the agreement was in force the manufacturers informed the merchants that they intended in the future to sell their goods themselves without the intervention of the agent. In an action by the merchants against the manufacturers for breach of agreement, it was held that the effect of the agreement was to confer on the plaintiffs the sole right of selling the goods manufactured by the defendants in their works, so that neither the defendants themselves nor any agent appointed by them, other than the plaintiffs, should have the right of selling such goods. Writer, J., while deciding the case observed : "In the case before me, the matter can properly be decided on the clear language of the contract". In the present case we have no written contract at all and the agreement between the parties has to be found by recourse to the actual practice. It will again be seen that in the case of W. T. Lamb & Sons the manufacturers had no right to recall the goods consigned to their sole selling agents. In our opinion, this case furnishes no guidance for the decision of the present case.
9. There are in the present case no doubt certain circumstances relied on by the Collector, viz., (1) that the bills were issued by the company in their own name ; (2) that there was no privity of contract between the appellants and the customers ; and (3) that the company can sue or be sued by its customers. As to the third circumstance, if the publication of the name of the manufacturers and of the company as distributors be regarded as disclosure of the company's principal, there would be no such right to sue or the liability to be sued by their customers. It seems to us, however, that where a principal appoints another party as an agent to sell his goods, it is open to him to leave it to his agent to sell the goods to whomsoever he likes and make out bills in his own name, provided that the goods are sold at the rates specified by the principal. Sections 230 and 231 and other sections of the Indian Contract Act contemplate cases in which an agent may enter into a contract without disclosing to the other side that he is acting as an agent for a principal. Section 231 provides that in such cases the principal may require performance of the contract subject to the right of the other contracting party having, as against the principal, the same rights as he would have had as against the agent if the agent had been the principal. The company in this case has to account for the purchase price received to the appellants, besides accounting for all advances received and expenses incurred as well as the commission charged. The ordinary rule between an agent and the principal is that the former is bound on demand to account for such, receipts (Section 231 of the Indian Contract Act); whereas, as pointed out by Jessel, M.R., in Kirkham v. Peel 43 L.T. 171, although a commission agent is liable to the consignor for the amounts received and although he makes advances to the consignor and charges interest, and debits himself with the amounts received when they are received, and credits himself with interest on the other side of the account "the real transanction between the parties is for the consignor to treat such consignee as creditor for his advances and interest and to regard him as a debtor for the amounts received and interest". In Black wood Wright's Law of Principal and Agent (second edition, p. 189) this case is cited as authority for the position that a commission agent is not a fiduciary agent and that the moneys he recovers are his own ; and that by the custom of trade he is only liable as debtor to his employer for the amounts received.
10. In view of the above considerations, it does not seem to us possible-to hold that the company was acting as the commission agent of the appellants. In this case there is no right in the company to make any profit over and above their commission. The condition that the prices are to be paid to the appellants irrespective of the recovery thereof appears to show that the company is in the position of a del credere agent, i.e., an agent who has undertaken that persons with whom he enters into contracts on the principal's behalf will be in a position to perform their duties. It is for this reason that the company bears its bad debts, the remuneration charged being regarded as covering the risk of such debts. The remittances sent by the company to the appellants from time to time cannot be held as remittances of the sale proceeds, but as remittances in discharge of agent's obligation arising under the company's agreement with the appellants. That being so, we are unable to hold that the supplies in question constituted sales by the principal, i.e., the appellants, to the agent, i.e., the company. This conclusion appears to be supported by the recent decision of the High Court in S.K.F. Ball Bearing v. Commissioner of Income-tax, Bombay City  29 I.T.R. 479.
11. We are, accordingly, unable to agree with the Collector that the supplies in question represent sales attracting the provisions of the Bombay Sales Tax Act. We, therefore, allow the appeal and set aside the decision of the Collector.