1. The petitioner, a private limited company (hereinafter referred to as the assessee), reported for the year 1970-71 a total and taxable turnover of Rs. 4,31,85,496.37 and Rs. 83,142.89 respectively under the Tamil Nadu General Sales Tax Act, 1959. By an order dated 25th September, 1971, the Commercial Tax Officer-IV, Central Assessment Circle, determined the total and taxable turnover of the assessee at Rs. 4,39,31,847.42 and Rs. 19,05,391.44 respectively. Later, by an order dated 28th August, 1972, the order dated 25th September, 1971, was rectified by refixing the purchase turnover of raw hides and skins at Rs. 18,76,620.29 as against Rs. 18,11,981.59 determined earlier. It was also found out by the assessing authority that in the original assessment dated 25th September, 1971, exemption had been granted on the purchase value of chemicals imported by the assessee and distributed to certain subsidiary concerns. The assessing authority estimated the sale value of the chemicals so distributed at Rs. 12,42,541.45 and by an order dated 20th August, 1974, this turnover was assessed at 3 per cent. The assessee disputed the assessment of Rs. 12,42,541.45 relating to the import of chemicals and contended before the Appellate Assistant Commissioner that the chemicals were imported by the assessee in its capacity as an agent pursuant to an agreement with the subsidiary concerns and that the transactions are not exigible to tax. The stand taken by the assessee was accepted by the Appellate Assistant Commissioner, who set aside the assessment on the turnover of Rs. 12,42,541.45.
2. In the exercise of suo motu revisional powers under section 34 of the Tamil Nadu General Sales Tax Act, 1959, the Board of Revenue examined the order passed by the Appellate Assistant Commissioner and issued a notice to the assessee to the effect that the transactions of the assessee cannot be stated to be that of an agent nor can it be said to represent sales in the course of import and that it was, therefore, proposed to set aside the order of the Appellate Assistant Commissioner and restore the order of the assessing authority. The assessee, in its reply to the Board's notice, stated that it acted only as a purchasing agent on behalf of the subsidiary concerns and that the goods had not been sold by them to the assessee. The Board however, did not accept this, but concluded that in importing the chemicals, the assessee did not act as an agent of the subsidiary concerns, but that the import was on its own account, and therefore, there was no question of the assessee having played and role of a buying agent on behalf on the subsidiary concerns. In this view, the Board set aside the order of the Appellate Assistant Commissioner and restored the order of the assessing authority. It is the correctness of this order of the Board that is challenged by the assessee in this appeal.
3. The learned counsel for the assessee contended that the assessee had acted as the agent of several sister concerns for the purpose of exporting their hides and skins and the import of the chemicals consequent to the incentive given under the Export Promotion Scheme could also be only on behalf of those concerns and that, therefore, the distribution of the chemicals so imported would not constitute sales as such effected by the assessee and be liable to be brought to tax. On the other hand, the learned Government Pleader would urge that the import of the chemicals by the assessee was the result of the sales effected by it to foreign buyers, and therefore, the distribution of the chemicals so imported by the assessee would also partake the character of sales for purposes of the Act, and therefore, the order of the Board was quite justified.
4. It is seen from the records that the assessee had imported chemicals under the Export Promotion Scheme and had transferred the chemicals so imported to the subsidiary concerns for the value of Rs. 12,42,543.76, the details of which are as under :
1. Narayanan Chettiar Industries Rs. 1,89,537.92
2. Tamil Nadu Tanneries Rs. 7,50,973.60
3. Madurai Dindigul Syndicate Rs. 1,19,641.78
4. East India Tanning Corporation Rs. 95,221.28
5. Nagappa Industrial Corporation Rs. 67,906.72
6. Chettiar's Tanning Corporation Rs. 19,262.46
Total Rs. 12,42,543.76
5. The assessee had entered into agreements with all the abovementioned concerns and the assessing authority, who had made the original assessment as well as the reassessment had accepted the fact that the assessee had entered into such agreements. It is also not in dispute that such agreements had existed from 21st September, 1963, onward and had been periodically renewed. The terms of the agreement dated 1st April, 1970, between the assessee and Nagappa Industrial Trading Corporation have been extracted in the order of the Appellate Assistant Commissioner. Amongst others, the agreement states that the assessee is appointed and retained to act as their agents to promote exports and also to import all kinds of chemicals from the foreign countries on the basis of their export in proportion to the allotment by the Import Control Authorities. The agreement empowers the assessee to enter into contracts in their own name, unless otherwise restricted by the principals. It is also further provided that in the import of goods from the foreign countries, the bills of lading may be taken in the name of the principals or in the name of the agents on behalf of the principals on the distinct understanding that the property in the goods had passed as soon as the shipping documents are negotiated. There is also a provision for the assessee making a claim from the principal in respect of the handling charges and commission calculated at 5 per cent and debit the same to the principal's account, in addition to the amount of expenses incurred by the assessee on their behalf.
6. According to the assessee, it acted only pursuant to the terms of the agreement so entered into between the assessee and the other sister concerns referred to earlier and that the role of the assessee in the transactions in question was merely that of an agent of the sister concerns and no more. It does not appear from materials made available that the sister concerns sold the hides and skins to the assessee, who in turn had sold them to the foreign buyers. In other words, the sales effected by the sister concerns were through the assessee, who was their local exporting agent. It is in this connection that the difference between a transaction of sale to an agent and a transaction of sale through an agent should be borne in mind. If there was a sale to the agent, who thereafter exported, then the transaction could well be a local sale. But when the sale was through an agent, the agent could have acted only on behalf of the principal and the export should be deemed to have been made only by the principal himself. In the absence of any materials to establish that the sales of hides and skins of the sister concerns were made to the assessee and that thereafter the assessee had sold them to the foreign purchasers, the inference is irresistible that the assessee had acted only pursuant to the agreements entered into between the assessee and the sister concerns and that would rule out the sale by the sister concerns to the assessee, who then had exported the goods to the foreign buyers. The books of account which had also been made available before the assessing authority did not reflect the hides and skins exported by the assessee as having been sold to the assessee by the sister concerns. If, therefore, the export of hides and skins of the sister concerns by the assessee was on behalf of those concerns, acting as their agent, such export should be deemed to have been made only by the sister concerns themselves, though through the agency of the assessee. If this is the real position with reference to the sales to the foreign buyers effected by the assessee, the import entitlement with reference to such export sales under the Export Promotion Scheme could not partake a different character, as by the terms of the agreement referred to earlier, the assessee had also acted only in its capacity as the agent of the sister concerns even for the purpose of import entitlements.
7. We have carefully looked into the records and we do not find any material to support the conclusions of the Board that the assessee did not act as the agent of the subsidiary concerns. Indeed, there is no consideration of the true import of the terms of the agreements between the assessee and the sister concerns set out earlier. As seen already, the sales of hides and skins manufactured by the sisters concerns to the foreign buyers had been effected through the instrumentality of the assessee, and therefore, the Board was not quite correct in stating that there is no privity of contract between the subsidiary concerns and the foreign buyers. It may be that the agreements between the assessee and the subsidiary concerns was of a general nature, but the existence and the validity of the agreement and its terms cannot be disputed and the terms of the agreement would undoubtedly govern the relationship between the assessee and the sister concerns as agent and principals as well as the transaction entered into by the sister concerns with the foreign buyers as transactions of sales having been entered into between the sister concerns and the foreign buyers. In distributing the chemicals imported in proportion to the entitlement of the sister concerns, again, there was no element of sale, as the import was on behalf of the sister concerns in which also the assessee had acted as the agent and the distribution of the chemicals to the respective sister concerns was also done by the assessee only in its capacity as agent and no more. In this view, it is difficult to sustain the order of the Board, as it is established beyond doubt that the assessee had acted only as the agent of the sister concerns referred to earlier in the course of the transactions resulting in the import of chemicals pursuant to the incentive provided under the Export Promotion Scheme.
8. It only remains to refer to Hajee Abdul Khalique Sahib & Co. v. State of Tamil Nadu  44 STC 261, State of Tamil Nadu v. A. Shafeeq Ahmed & Co.  44 STC 263 (App), Akhtar & Co. v. State of Tamil Nadu  47 STC 62 and State of Tamil Nadu v. A. Rafeeq Ahmed & Co. (Tax Case No. 500 of 1977 dated 16th July, 1981, since reported in  52 STC 281) to which our attention was drawn.
9. In the first of these cases, the assessees claimed that the disputed turnover related to sales in the course of export, such sales having been effected through local exporting agents. In other words, the assessees took the stand that there was no sale to the local agent, and therefore, the assessees should be deemed to be the exporters. This stand was not countenanced by the assessing authority. But the Appellate Assistant Commissioner pointed out that such a transaction could be either a sale to an agent or a sale through an agent and that only in the case of sale to an agent who then exported, the transaction can be characterised to be a local sale and not when a sale had been effected through an agent in which case the agent had acted merely on behalf of the principal (the assessee therein) and the export should be deemed to have been made by the assessee himself. In this view, the order of assessment was set aside and the matter was remitted for a fresh consideration. On appeal, the Tribunal felt that there was no distinction between a sale to an agent and a sale through an agent and that as sales in the course of export, the entire turnover would be exempt. In considering the correctness of this order, the Bench pointed out the distinction between a sale to an agent who later exported and the sale through an agent and directed the Tribunal to analyse each transaction and conclude whether the export sale was by the assessee or by the agent in his own right. At page 264, the Bench observed as follows :
"......... if the facts were to be that the contract was entered into by the agent on his own right and not as on agent of the assessees, there shall be deemed to be a sale by the assessees to the agent and there would be no privity of contract between the assessees and the foreign buyer and it would amount to a case of sale for export to a local agent."
10. The aforesaid observations would mean that even a contract entered into by an agent on behalf of a principal, though not disclosed as such, would be deemed to be a sale by the assessees to the agent with the result that there would be no privity established between the assessee and the foreign buyer and in every such case it would also amount to a sale for export to a local agent. We do not see how the mere entering into a contract by the agent in his own name and not disclosing that it is as an agent on behalf of the principal could be deemed to be a sale by the assessee in favour of the agent and subsequently another sale by the agent to the foreign buyer for almost the same price. In this view, it has to be pointed out that the above observations of the Bench have been made rather too widely.
11. In Hajee Abdul Khalique Sahib & Co. v. State of Tamil Nadu  44 STC 261, the assessee claimed that certain turnovers relating to export sales are not liable to sales tax. The assessing authority declined to accept this. But on appeal the Appellate Assistant Commissioner found that the local exporting houses acted on behalf of the appellants, and therefore, the turnovers were eligible for exemption. The Board of Revenue suo motu revised that order and added the turnovers. Dealing with the correctness of this, it was found factually in that case that the correspondence did not show that the local exporters acted as the agents of the assessees and further it was also admitted that there was nothing to show that the local exporting houses were acting as the agents of others and that they were not dealing with their own goods by way of selling them to foreign buyers. On the facts found in that case, undoubtedly the Board was quite justified including the disputed turnovers and assessing them to sales tax. But factually such is not the position in the instant case, as it has earlier been found that the transactions have been put through by the assessee only in its capacity as the agent of the sister concerns. Therefore, the decision in Hajee Abdul Khalique Sahib & Co. v. State of Tamil Nadu  44 STC 261 will not have any application to the instant case.
12. Reference may now be made to Akhtar & Co. v. State of Tamil Nadu  47 STC 62. In that case, it was held that so long as there is proof of agency and the goods have been sent by the agent as such and not as his own, there is privity of contract between the principal and the foreign buyer even in a case where the agent had not disclosed the name of the principal. Further, it has also been pointed out that there is no need that there should be a written contract of agency between the principal and the agent, but that so long as the transaction was only on behalf of the assessee, the privity of contract would be established between the assessee and the foreign buyer, and therefore, the export transactions effected by the assessee through his as agent would be exempt from sales tax. This decision thus lays down that even though the agent does not disclose that he his acting on behalf of the principal but purport to act as an agent, there will be a privity of contract between the principal and the foreign purchaser. No doubt, to this extent, there is a departure from the observations referred to earlier in State of Tamil Nadu v. Shafeeq Ahmed & Co.  44 STC 263 (App), but it has already been pointed out that those observations have been rather widely made and the decision in Akhtar & Co. v. State of Tamil Nadu  47 STC 62 would, in our view, affirm that.
13. In addition State of Tamil Nadu v. Rafeeq Ahmed & Co. (Tax Case No. 500 of 1977 dated 16th July 1981, since reported in  52 STC 281), after referring to Hajee Abdul Khalique Sahib & Co. v. State of Tamil Nadu  44 STC 261, State of Tamil Nadu v. Shafeeq Ahmed & Co.  44 STC 263 (App), and Akhtar & Co. v. State of Tamil Nadu  47 STC 62 lays down the principle as under :
"Where an assessee enters into an export sale through the medium of an agent and this mode of transaction is evidence by the record, the fact that the foreign buyers are unaware of this circumstance would not detract from the fact that the sales are really those of the assessee. It is further laid down in these cases that it is a question for examination of the facts of each case, whether the person who figures in the assessee's accounts as the exporting agent is really an agent acting as such for the assessee's transactions with the foreign buyers."
14. After laying down the general principles culled out from the three decisions referred to earlier, Balasubramanyan, J., dealt with the observations made in State of Tamil Nadu v. Shafeeq Ahmed & Co.  44 STC 263 at 264 (App) and stated as follows :
"According to the learned Judge, where the assessing authority rejects an assessee's claim that he has exported the goods through an agent, it would be open to that authority to proceed further and treat or 'deem' the export turnover in the assessee's books as local sales effected by the assessee to an independent local buyer, miscalled an agent.
We are not sure that Ramaswami, J., meant to lay down, in the above passage, any substantive rule of law or even a special rule of evidence universally applicable to all such cases. The learned Judge's proposition, when analysed invokes a double fiction. We are asked, first, to imagine a local sale as if effected by the assessee to the so-called agent, and then, on top of it, to imagine a subsequent sale as if effected by the agent to the foreign buyer. It is needless to remind ourselves that sales tax under the statute attaches to actual sales, that is to say, sales which have taken place, and not to sales which have not taken place. We do not doubt that always it is a matter for evidence whether or not a sale has taken place, and how it has taken place, if it has taken place at all. It may be that it is open to the assessing authorities to 'infer' sales under certain circumstances. But even for inferences of this kind, there must be some modicum of material to serve as a basis. Inferences must have some roots. Without basis, the authorities cannot record a finding of taxable sales, from thin air, as it were."
15. Proceeding to consider the effect of the rejection of the agency, the learned Judge observed as follows :
"....... let us assume that the interposition of the agency can be rejected by the assessing authorities as unreal. Does it automatically follow therefrom that the assessee must be held to have effected an out and out sale to the person who figures in the accounts as agent What is more, can we extend the inference farther and hold that the agent, in turn, had effected sales of the same goods in the course of export to the foreign buyers We think not."
16. Considering the impact of the observations in State of Tamil Nadu v. A. Shafeeq Ahmed & Co. 44 STC 263 at 264 (App), in the light of explanation (4)(a) to section 2(a) of the Tamil Nadu General Sales Tax Act, Balasubrahmanyan, J., pointed out that there was no fiction or other deeming provision with reference to the treatment of the assessee's transactions as independent sales transactions and that, therefore, the assessing authority or any other body has no power to create a fiction of its own and foist fiscal liabilities on the basis of such fictions. It has already been seen how the observation in State of Tamil Nadu v. A. Shafeeq Ahmed & Co.  44 STC 263 at 264 (App) have been held to be rather widely and broadly stated and the observations extracted above would also support this view. We may add that we are inclined to accept the reasoning inState of Tamil Nadu v. A. Rafeeq Ahmed & Co. (T.C. No. 500 of 1977, dated 16th July, 1981, since reported in  52 STC 281), as laying down the correct position with reference to such transactions. Having regard to the aforesaid considerations, we are of the view that the Board was in error in having restored the order of the assessing authority.
17. Consequently, the appeal is allowed and the order of the Board the of Revenue is set aside and that of the Appellate Assistant Commissioner is restored. There will be no order as to costs.