A

SNOW WHITE INDUSTRIAL CORPORATION, MADRAS

v.

COLLECTOR OF CENTRAL EXCISE, MADRAS

APRIL 28, 1989

B [SABYASACHI MUKHARJI ANDS. RANGANATHAN, JJ.]

c

Central Excises and Salt Act, 1944: ss. 4( l)(a) & 35-L(b)­

Assessee-Excisable. goods sold through 'selling agents'~Asc<essable

value-Determination of-New plea on permissible deductions not

raised even before Tribunal-Validity of.

Indian Contract Act,

1872: s. 182-Contract entered into with

'selling agents'-Nature of-Whether contract of agency.or contract of

sale-Determination of.

'

The assessee-appellants, a partnership tirm carrying on manu-

D factoring business in Madras entered into an agreement with a com­

pany based in Calcutta for sale of their product through the latter's sales

organisation in all the States of India. In the said agreement the assessee

was referred to as the 'manufacturer' and the company as the 'sole l

selling agents'

of the product.

The agreement itself was described as an !'

'agreement of sale'. It provided inter alia that the stocks left over unsold

E beyond two years from their receipt with the selling agents could be

returned to the appellants who were bound to replace them, that the

appellants Should take all suitable action for recovery

of damages

from

the carriers, that they would supply the selling agents with all the

necessary publicity material and also advertise

at their cost through the

media,

that the selling prices and transfer prices of the product would

)>

F be mutually agreed from time to time between them and the selling

agents,

that any reduction in price during the currency of the agree-

;..._

ment was to be duly renected in the price of stock lying unsold with the

selling agents, and that on termination of the contract either by the

assessee

or by the selling agents, the unused stock lying with the latter

G

was

to be returned to the former.

The appellants were assessed to excise duty under the Central

Excises and Salt Act, 1944 for the period July, 1977 to March, 1979 on

the basis

of the price at which the selling agents had sold the goods to

their customers in the course of the wholesale trade. They however,

claimed

that the assessable value should be the price at which the excis-

H able goods were sold

by them to the selling agents

and sought refund of

782

SNOW WHITE CORPN. v. C.C.E. 783

the excess excise duty thus paid. The Assistant Collector of Excise and A

the Collector rejected the said claim.

The Tribunal took the view that a sine qua non of a sale was that

the title to the goo'ds should pass from the seller to the purchaser. When

once

that were not so, then it could not be said that it

was an agreement

'v for sale. On an analysis of the conditions of the agreement in the instant

{ ·~. case it found that the title to and the ownership in the goods consigned

. to the selling agents continued with the appellants. It, therefore,

concluded

that the true character of the agreement was that it was an

agreement for sole selling agency and not an agreement for sale.

It

further held that the selling agents were 'a related person' as

under·

stood under s. 4(4)(c) of the Act aud, therefore, the assessable value of

~

the goods for !evy of excise duty must be ob the basis of price at which

the selling agents ordinarily sold these in the course of wholesale trade

less the transportation cost and other permissible deductions such as

'

duty of excise and sales tax, if any, subject to proof.

In this appeal under s. 35-L(b) of the Act it was contended for the

~ppellants, that there were two prices--'transfer price; and 'selling

price' and there was good deal of difference between these prices which

was suggestive

of an outright sale, that the terms referred to by the

Tribunal were merely indicative of the fact that it was an agreement

whereby the purchaser upon terms was described as 'sole selling

agents', that the appellants were manufacturing a product which was

liable to lose its efficacy and quality after lapse of time and as such a

replacement clause was inserted to ensure that the bad quality goods

did not

go to the market and damage their reputation, that the selling

agents were not 'related persons' in terms of s. 4(4)(c) of the

Act as

there was nothing in common between them and the appellants, and

that claims like cost of transportation and other permissible deductions

such as duty of excise and sales tax t~ which they Were otherwise entitled

to should have been deducted from the 'value' subject to proof by the

appellants. '

Dismissing the appeal,

HELD: 1.1 Whether there was an agreement for sale or an agree­

ment of agency to sell must depend upon the facts and the circumstances

and the terms of each case. Such facts and terms must be judged in the

background of the totality of the circumstances.

All the terms and

conditions should be properly appreciated. The terminology used

by the

B

c

D

E

F

G

parties is not decisive of the legal relationship. [789F, 793D] H

A

B

c

784 SUPREME COURT REPORTS [1989] 2 S.C.R.

1.2 The essence of a contract of sale is the transfer of the title to

the goods for a price paid or promised to he paid. The transferee in such

a case

is liable to the transferor as a debtor for the price to be paid. The

essence

of the agency to sell is the delivery of the goods to a person who

is to sell these not as his own property but as the property of the

principal, who continues to be the owner of the goods, and make over

the sale proceeds to the principal. An agent, however, could become a

purchaser when he paid the price to the principal on his own

res­

ponsibility. [ 793C, 792A]

1.3 In the instant case, the most important fact suggesting agency

was

the clause which enjoined that the stocks left over unsold beyond

two years from

their receipt could be returned to the appellants who

were bound to replace these. Added to it was the fact that the appellants

were to

prefer all claims for recovery of damages from the carriers and

any reduction in price during the

~urrency of the agreement was to be

duly reflected in the price of stock lying unsold with the selling agents,

and the obligation that on the termination of the contract by either the

D appellants or the selling agents, unsold stocks lying with the latter were

to

be returned to the former. [793F, GH]

1.4 The Tribunal was, therefore, right in holding that the trans-

~

action with the selling agents was not a transaction of sale but an agree-

ment for agency. If that be so, then the first sale was by the selling

E agents to the customers of tbe market. The price of that sale would thus

be

the assessable value under s. 4 of the Act. In that view of the matter

it·

was not necessary to determine the question whether the selling agents

were

'related

·persons' in terms of s. 4(4)(c) of the Act. l795UE]

W. T. Lamb & Sons v. Goring Brick Company Ltd., [1932] I KB "'(

f 710; Gordon Woodroffe & Co. v. Sheikh M.A. Majid & Co., [1966]

SCR Suppl. 1 and Tirumala Venkateswara Timber & Bamboo Firm v. (

·~ Commercial Tax Officer, Rajahmundry., [1968] 2 SCR 476 referred to.

2. Though apart from cost of transportation, excise duty and sales

tax,

other charges were not sought to be deducted by the appellants in

G the

appeal and were not canvassed before the Tribunal too. nor in the

grounds of appeal there was any such claim, in the interest of justice

they

are permitted to have the benefit of other deductions envisaged in

Assistant Collector of Central Excise &

Ors. etc. v. Madras Rubber

Factory Ltd., I 1987] I SCR 846 subject to the order passed in the review

matter. [795G, 796AB]

H

SNOW WHITE CORPN. "· C.C.E. !MUKHARJ!, J.l 785

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4159 A

of 1984.

From the Judgment and Order dated 20. 1.l984 of the Customs,

·Excise and Gold (Control) Appellate Tribunal, New Delhi in Appeal

No. ED(SB)(T) 644/81-A (Order No. A29/84).

)' 'f· P.P. Rao, Rameshwar Nath, D.N. Mehta and Ravinder Nath for B

the Appellants.

V.C. Mahajan, Arnn Madan and P. Parmeshwaran for the

Respondent.

The Judgment of the Court was delivered by

SABYASACHI MUKHARJI, ,J. This is an appeal under section

35-L(b)

of the Central Excises &

Salt Act, 1944 (hereinafter referred

c

to as 'the Act') from the judgment and order of the Customs, Excise &

Gold (Control) Appellate Tribunal (hereinafter referred to as 'the o

Tribunal') dated the 20th January, 1984.

The appellants are the manufacturers of 'Supercem Waterproof

Cement Paint', hereinafter called as the 'Product', and other allied

products in their factory at Madras. They manufacture and market this

product throughout India.

It is stated that the appellants are a small E

manufacturing firm with no branches and/or sales offices in any other

State, city or town. In these circumstances, an agreement for sale

described as an 'agreement of sale' dated

1st May, 1962 was entered

into with Gillanders Arbuthnot

& Co. Ltd., of Calcutta, hereinafter

called 'Gillanders'. The said company has a very big sales organisation

having its offices located

at all important places in the territory of F

Union of India and they market goods of all types, not only of the

appellants herein, but also

of several other reputed manufacturers

through their well 'staffed offices in

all the

States of India. The appel­

lants vide their letters dated 23rd April,

1979 and 15th May,

1980 to

the Excise authorities, had claimed a refund of Rs.2,39,153.63 on

account

of excess excise duty paid on the assessable value on the basis G

of price at which the Gillanders had sold the products to its customers,

during the period July,

1977 to March, 1979. Both the Assistant

Collector by his order dated 29th May,

1980 and the Collector by his

order dated 24th March, 1981 rejected the contention of the appellants

and held that the assessable value is the price at which Gillanders sold

the goods. H

786 SUPREME COURT REPORTS [1989] 2 S.C.R.

A The Tribunal in its order dated 20th January, 1984 referred to

relevant clauses

in the said agreement dated Isl May, 1962 and came to

the conclusion that it

was abundantly clear from the conditions that the

title to and the ownership

in the goods consigned to Gillanders was not

to pass to them. According to the Tribunal a

sine qua non of a sale is

that the title should pass from

the seller to the purchaser. When once

that were not so, according to the Tribunal, then it was futile to con-"(

tend that it was an agreement for sale. The Tribunal on an analysis ol:{

B

conditions of agreement, came to the conclusion that the true charac­

ter of the agreement was that it was an agreement for sole selling

agency and not an agreement for sale. The Tribunal also referred to

the expression 'a related person' in the definition given by Sec. 4(4)(c)

C

of the Act and held that Gillanders was a related person and, there­

fore, the assessable value of the goods for levy of excise duty must

be

on the basis of the price at which Gillanders ordinarily sold these in the

course of wholesale trade

less, the transportation cost and other

permissible deductions. such as duty of excise and sales tax,

if any,

subject to proof. Aggrieved thereby, the appellants have come

up in

D this appeal to this Court.

The first question that

was canvassed and which requires to be

determined is whether the agreement dated !st May,

1962 is an agree­

ment for sale

or is one for sole selling agency.

E In the said agreement, the appellants have been described as a

partnership firm carrying on business at Madras and referred to as

'The Manufacturer' and Gillanders of Calcutta described as 'The

Selling Agents'. The agreement,

inter-alia, stated that the selling

agents had agreed to stock adequate quantities of the product for the

purpose

of sale thereafter. The manufacturer however agreed to

.F accept return of all stocks held by the selling agents for a period

of more than two years and replace such stocks free of all charges,

provided the lids of the containers were intact anc sealed. The agree­

ment further stated that all consignments would be despatched by the

manufacturer at Railway risk. In case there

was any damage or

shortage in transit the selling agents would lodge a claim on the

G Railways, provided, however, that the manufacturer should take all

suitable actions for recovery of the damages from the Railway

authorities and should reimburse the selling agents all losses and

damages

that they might suffer in the premises. It was further agreed

that in consideration of the premises, the manufacturer should pay the

selling agents a discount, namely,

17-

1

/2% on the transfer prices of all

H materials supplied against the orders received from the selling agents

~

,.,-

SNOW WHITE CORPN. v. C.C.E. [MUKHARJ!, J.] 787

from its offices at Calcutta, Kanpur, Delhi and Bombay; 18% on the A

transfer prices of all materials supplied against the orders received

from the selling agents from its Madras Office. It also provided for an

additional cash discount of 1'/2% on the net transfer price, that is to

say, transfer price less the discount specified above provided the sel·

ling agents paid the price of the goods supplied by the manufacturer

within 30 days from the date of the bills by the manufacturer in respect B

of orders placed by the selling agents from its offices at Calcutta,

} Bombay, Madras and Delhi and within

45 days from the date of the bill ' py the manufacturer in respect of orders placed by the selling agents from

its Kanpur Office. It also provided for an additional turnover discount

of 1 % on the transfer prices over and above the discount specified

above provided the total sales calculated at the selling prices exceeded C

Rs. 4 lakhs per annum and 1 ·'h % on the transfer prices on such

amount exceeding Rs. 4 lakhs per annum.

In calculation of the

turnover figure of Rs. 4 lakhs, the orders received

by the manufacturer

directly from the Government

woul'd not be taken into consideration.

The manufacturer would normally, the agreement provided, expect

the selling agents to pay all bills within 60 days from the date of such D

bills to the selling agents. The selling agents agreed to send to manu·

facturer the necessary 'C' Declaration Forms under the Central Sales

Tax Act as quickly

as possible in respect of sales made directly to the

selling agents. The manufacturer further agreed to supply the selling

agents with all necessary publicity materials and to advertise

at their

own cost at regular intervals through the media of the daily press, E

trade journals, Government publications and cinema slides and in all

such advertisements should mention that the selling agents were the

sole selling agents of the products. The manufacturer also agreed to

supply the selling agents reasonable quantities of sample free of

charge. All expenses such

as godown rent, transport charges, postal

and telegram charges, bank commission, etc., connected with the sales p

of the products, it was stipulated, would be borne by the selling agents.

It was, inter alia, provided that the selling prices and transfer prices of

the product would' be mutually agreed to from time to time between

the manufacturer and the selling agents. Current selling prices and

transfer prices were set

out in the schedule to the agreement. It was

stipulated also that the selling agents might allow any discount to any G

dealer at their discretion. The manufacturer agreed to execute and

despatch orders to all dealers outside the State.of Madras, provided

firm instructions were received to that effect

fro~ the selling agents, to

eliminate unnecessary handling charges. The agreement provided that

in such cases, the manufacturer would credit the selling agents with

their usual commission after deducting therefrom any discounts which H

788 SUPREME COURT REPORTS [1989] 2 S.C.R.

A might be allowed to the dealer on the specific instructions of the selling

agents. The manufacturer further agreed to execute such orders

against the guarantee of the selling agents.

In the case of direct orders

to dealers outside the

State of Madras, the selling agents might quote

either F.O.R. station of despatch or destination terms. If the goods

supplied

by the manufacturer were found to be sub-standard goods or

B inferior

in quality the manufacturer should at his own cost take back

the goods and replace the goods of satisfactory marketable quality at .

its own cost. The manufacturer should not be responsible for failure

to--{

deliver or for any delay in delivery if such failure or delay was due to '

act of God or enemies of the State, wars, revolution, embargo, riots,

civil

or political disturbances, strikes, lockouts declared due to circum-

C stances beyond the control of the manufacturer, shortgage of labour,

cut

or failure of power supply or service, force majeure or any other

cause beyond their control. The agreement, it

was stipulated by clause

19 thereof, would remain' in force for one year from the date of the

agreement. But the parties had

th~ right to terminate the agreement by

giving three months notice in writing to either side. It was further

D stipulated that

if the agreement was terminated whether by the manu­

facturer or

by the selling agents, the manufacturer should accept re­

turn of all unsold stocks lying with the selling agents at their various

branches and to reimburse the selling agents with the net value of such

stocks at the transfer prices

in force on the date of the termination of

the agreement. There was arbitration clause and other clauses which

E are not material for the present purpose.

The Tribunal analysed the agreement and emphasised that

Gillanders were described

as sole selling agent of the product of the

appellants throughout India. It also noticed that the appellants were to

supply to the Gillanders with advertisement material. The Tribunal

F also noted the clause which provided that the stocks left over unsold

beyond two years from their receipt with Gillanders could be returned

to

the appellants who were bound to replace these. The Tribunal

noticed that it

was not the appellant who was

to prefer claims for

recovery of damages from the carriers. The Tribunal referred to the

clause which stipulated that Gillanders were to promote sales of the

G product throughout India and were not to handle sales of any other

material likely

to conflict with the sales of the appellants' product. It

noted that any reduction in price during the currency of the agreement

was to be duly reflected

in the price of stock lying unsold with

Gillanders. Although, the appellants retained the right of sale directly

to large Government consumers, Gillanders were to

follow up such

H· transactions and were to be paid an over-riding commission of2-1h%.

f--

SNOW WHITE CORPN. v. C.C.E. [MUKHARJJ, J.] 789

~

Where, however, Gillanders tendered for Government supplies and

A

followed it up,. they were to be paid a commission of 5%. In all other

cases, they were ti;> earn a commission, described, however, as a dis-

count and additional cash discount apart from total sales discount

in

case where total sales exceeded Rs. 4 lakhs, on the orders received

from Gillanders. The Tribunal also referred to the clause which pro-

vided that on termination of the agreement

by either party, unsold B

.,

'

stocks lying with the Gillanders were to be returned to the appellants.

.!--On an analysis of the aforesaid aspects of the clauses, the Tribunal

· came to the conclusion that the title to and ownership of goods, con-

tinued with the appellants and did not pass to the Gillanders. In order

to be sale, the title should pass from the seller to the purchaser for a

price. If it

is not so, the Tribunal noted, then it was not sale. The

c

Tribunal came to the conclusion that it was an agreement for sole

~·

selling agency and not an agreement for sale. The question is whether

the Tribunal was right on this aspect.

On behalf of the appellants, Shri P.P. Rao contended that it has

to be emphasised that there

was no flow back of the profit to the D

manufacturer and that was absent in. the instant case. He also referred

to the fact that there were two prices-transfer price and selling price

and there was good deal of difference between these prices. He sub-

·~

mitted that read in the proper perspective, there was no agency. He

emphasised that there was stipulation for payment of sales tax and

these were separately specified-one

was described as selling agent E

and the second one the real purchaser.

It is well settled that in a situation like this, whether there was an

agreement for sale or an agreement of agency, must depend upon

the

facts and the circumstances and the terms of each case. Such facts and

-y·

terms must be judged in the background of the totality of the circum- F

. ,,.

stances. All the terms and conditions should be properly appreciated .

It is also correct that though the appellants described the Gillanders as

selling agent, but ~hat is not conclusive. And it is also correct to state

that the difference of the prices between the transfer and the selling

prices

is suggestive of an outright sale. In

W. T. Lamb and Sons v.

. ' Goring Brick Company Ltd., [1932] 1 KB 710, by an agreement in G

~ writing certain manufacturers of bricks and other building materials

appointed a firm of builders' merchants "sole selling agents of all

bricks and other materials manufactured at their works". The agree-

men! was expressed to be for three years and afterwards continuous

subject to twelve months' notice

by either party. While the agreement

was in force, the manufacturers informed the merchants that they H

790 SUPREME COURT REPORTS [1989] 2 S.C.R.

A intended in the future to sell their goods themselves without the

intervention of any agent, and thereafter they effected sales to custo­

mers directly. In an action by the merchants against the manufacturers

for breach of the agreement, it was held both

by Justice Wright in the

Trial Court and on appeal

by the Court of Appeal, that the effect of

the agreement

was to confer on the plaintiffs the sole right of selling

B

the goods manufactured by the defendants at 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.

In--..<

those circumstances, it was held that the agreement was one of vendor · '

and purchaser and not of principal and agent. Lord Justice Scrutton

was of the view that in certain trades the word "agent" is often used

C without any reference to the law of principal and agent. Lord Justice

Scrutton was of the view that the words "sole selling agent" in the

contract had a distinct meaning implying that the manufacturers were

to sell to no one but the merchants who paid them the fixed price, and

the merchants sold, and they were the only persons to sell, to various

builders and contractors. Lord Justice Slesser

was of the view that the

D agreement

in the present case was somewhat difficult to understand,

because in one and the same document the same parties were des­

cribed

as

"merchants" and as "sole selling agents," the first being a

correct, but the second one an incorrect description, according to the

Lord Justice.

It was held that the agreement was one of vendor and

purchaser. Referring to some of the contract terms

in the instant case,

E Shri Rao submitted that

in this case also, the terms referred to by the

Tribunal and emphasised before

us by Shri Mahajan, learned counsel

for the respondent, were merely indicative of the fact that the parties

described a 'purchase upon terms'

as

"sole selling agent". It was an

agreement whereby the purchaser upon terms was described as "sole

selling agent," submitted Shri Rao.

F

This Court had occasion to consider this aspect in Gordon

Woodroffe

& Co. v. Sheikh M.A. Majid & Co., [1966]

SCR Supp. 1. In

that case, the respondent was a trader in hides ·and skins and the

appellant was an exporter. During the period January to August,

1949,

there were several contracts between them. The contracts mentioned

G

that the appellant was buying the goods for resale in

U .K. The price

quoted was C.I.F. less 2-

1

12 % . The contracts also provided that time

should be the essence of the contract, that the sales tax

was on respon­

dent's account, that the respondent

was answerable for weight as well

as quality, that there shoud be a lien on the goods for moneys

advanced

by the appellant, and that any dispute regarding quality

H should be settled

by arbitration according to the customs of the trade

SNOW WHITE CORPN. v. C.C.E. [MUKHARJI, J.[ 791

in the U .K. The course of dealing between them showed that before A

the goods were shipped these were subjected to a process of trimming

and reassortment in the godowns of the appellant with a view to make

these conforming to London standards, that the goods were marked

with

the respondent's mark and that premiums were paid to the

respondent in case the goods supplied were of special quality. The

respondent filed a suit on the original side of the High Court praying , that an account should be taken of the dealings between himself and

.}the appellant on the ground that the appellant was his agent. The

"appellant's case was that there was an outright purchase of the respon·

dent's goods and that the appellant was not an agent of the respon­

dent. The trial Judge dismissed the suit. On appeal, the High Court

held that the appellant acted as a del credere agent of the respondent

and directed the taking of accounts. In appeal to this Court, it was

contended by the appellant that the terms of the contracts and the

course

of dealing between the parties showed that the appellant was

not the agent of the respondent but 'was an outright purchaser of

the

goods and that there was a settled account between the parties which

the respondent could not reopen. This Court held that the appellant

was the purchaser

of the respondent's goods under the several

con·

tracts and not his agent for sale, and therefore, the view taken by the

High Court was not correct. It was reiterated that the essence of sale is

the transfer of the title to the goods for price paid, or to be paid,

whereas the essence

of the agency to sell is the delivery of the goods to

a

person who is to sell them, not as his own property but as the

property of the principal who continues to be the owner of the goods,

and the

agent would be liable to account for the proceeds. On the

terms of the contract and the course of dealing between the parties,

the contract was not one of agency for sale but was an agreement of

sale.

The appellant purchased the goods from the respondent at

2-

1

12 %

less

and sold them to the London purchasers at the full price so that the 2-

112% was its margin of profit and not its agency commission. This

point was emphasised by Shri Rao as a point similar to the instant case.

This

Court held therein that the fact that the goods were sent with the

respondent's mark, that the premium was paid

outsicje the terms of the

contract, that the appellant considered it fair and just to pay the whole

B

c

D

E

F

of the premium to the respondent or to share it with him, and that G

additional

burden with respect to weight and quality was thrown on the

respondent, had no significance in deciding the nature of the contract. This Court wa:s also of the opinion that the clause with regard to lien

was consistent with the transaction being an outright sale, because the

appellant was

a~ting as creditor of the respondent and charged interest

on advances only till the date of shipment of the goods when it became H

792 SUPREME COURT REPORTS [1989] 2 S.C.R.

A

the purchaser of the goods from the respondent.

It was held that an

,...

agent could become a purchaser when the agent paid the price to the

principal on his own responsibility. This

was another aspect which was

emphasised in.the facts of the present case by Shri Rao. In that case,

however, before the goods were shipped to London, these were sub-

jected to a process of trimming and reassortment

in the godown of the

B appellant with a view to make them conform to London standards. In

that process, the defendants often called upon the plaintiff

to replace

, i

the pieces found defective. If the defendants were merely acting ~

agents, this Court observed, the process of trimming and reassorting in

the godowns to make the goods conform

to London standards and

specifications would be unnecessary, for

in that case the defendants

c

were merely bound to ship the goods as these were delivered to them.

Another important feature of the transaction

was that in several

contracts, time

was fixed for delivery of the goods. This Court found

~

that the defendants were acting only as the agents for the sale, there

was no reason

why there should be a stipulation that time should be

the essence of the contract.

On behalf of the plaintiff, reference was

D also made to the fact that the contract provided for a lien on all the

goods covered

by the contracts for all moneys

.advanced by the

defendants, including expenses incurred and interest thereon. But it

was emphasised that in making

such advances, the defendants were

only acting

as creditors of the plaintiff and were therefore entitled to

"'

charge interest on such advances till they actually purchased the goods

E from the plaintiffs. The Court found that the primary object of the

contract

was that there was a purchase by the defendants from the

plaintiff

of the goods for resale in the

U.K. and in keeping with that

object, the buyer stipulated with the seller for delivery of the goods

abroad and for that purpose adopted a c.i.f. form of sale. This Court

referred to the principle that an agent could become a purchaser when

'<

F an agent paid the price to the principal on his own responsibility.

Reference

was made to the passage from Blackwood Wright,

'Princi-

A. pal and Agent', Second Edn., page 5, at page 10 of the Report, where

it was stated that

in commercial matters, where the real relationship

was that

of vendor and purchaser, persons were sometimes called

agents when,

as a matter of fact, their relations were not those of

G principal and agent at all, but those of vendor and purchaser. If the

~ person called an 'agent' was entitled to alter the goods, manipulate

them, to sell them at any price that he thought

fit after these had been

so manipulated, and

was still only liable to pay them at a price fixed

beforehand, without any reference to the price at which he sold them,

it was impossible to say that the produce of the goods so sold

was the

H money of the consignors, or that the relation of principal and agent

SNOW WHITE CORPN. v. C.C.E. [MUKHARJI, J.] 793

existed, according to this Court in that case.

Reliance was also placed on

Tirumala Venkateswara Timber and

Bamboo Firm v. Commercial Tax Officer, Rajahmundry, [1968] 2

SCR

476, where the concept of 'sale' in the background of the Andhra

Pradesh General Sales Tax Act, 1957 was considered. At page 480 of

A

the report, this Court observed that as a matter of law, there is a B

· distinction between a contract of sale and a contract of agency by

.t which the agent is authorised to sell or buy on behalf of the principal

and make over either the sale proceeds .or the goods to the principal.

The essence of a contract of sale is the transfer of title to the goods for

a price paid

or promised to be paid. The transferee in such a case is

liable to the transferor as a debtor for the price to be paid and not as

agent for the proceeds of the sale. The essence of agency to sell is the

delivery

of the goods to a person who is to sell these, not as his own

property but as the property of the principal who continues to be the

owner

of the goods and will

therefore be liable to account for the sale

proceeds. The true relationship of the parties

in each case has to be

gathered from the nature of the contract, its terms and conditions, and

the terminology used by the parties

is not decisive of the legal relation­

ship.

Shri Mahajan, learned counsel appearing for the respondent,

drew our attention to Section 182 of the Indian Contract Act, and

submitted and in the circumstances of this case, the clauses emphasi­

s..,.by the Tribunal clearly established that this was an agreement of

agency

and not a sale.

c

D

E

As mentioned hereinbefore, it depends on the facts and circum­

stances

of each case to determine the true nature of the dealings bet­

ween the parties. In the instant case the most important fact suggesting

agency was the clause which en joined that the stocks left over unsold

beyond two years from their receipt could be returned to the appel-F

!ants who were bound to replace these.

Shri Rao, however, suggested

that the appellants were manufacturing paint which was liable to loose

its efficacy and quality after lapse of time and as the appellants were

keen for its reputation, such a clause was inserted to ensure that the

bad quality goods or stale goods did not, through

Gillanders, go to the

market and damage the reputation of the appellants. This should be G

considered with the fact that the appellants were to prefer all claims

for recovery of damages from the carriers and any reduction in price

during the currency of the agreement

was to be duly reflected in the

price

of

stpck lying unsold with Gillanders and the obligation that on

the termination of the contract by either the appellant or Gillanders,

unsold stocks lying with the latter were to

be returned to the former. In H

794 SUPREME COURT REPORTS [1989] 2 S.C.R.

A the aforesaid light we are of the opinion thaf(the Tribunal was right in

considering this agreement as the agreement for sole selling agency

and not

as an outright sale. If that is the position then the first ground,

in

our opinion, taken by the Tribunal cannot be assailed.

B

c

D

E

F

G

H

Shri Rao had contended that the Tribunal ·was wrong in holding

that Gillanders were related persons

in terms of

Section 4(4)(c) of the

Act.

He submitted that the concept of 'having interest directly or

indirectly in the business of each other' has to be judged

independentty1.

of the transaction in question. He drew our attention to the various ·

authorities for the proposition that the purpose of introduction of

definition of 'a related person'

by the Central Excises and

Salt

(Amendment) Act, 1973 to contend that the distributors have to be

related and that such relationship ought to be found out independently

of the transaction in question. Our attention was drawn to the observa­

tions

of this Court in A.K. Roy v. Valtas Ltd., [1973] 2

SCR 1089,

where at page 1093 of the report; this Court noted that the appellants

had contended that the agreements with the wholesale dealers confer­

red certain extra-commercial advantages upon them, and so, the sales

to them were not sales to independent purchasers. Our attention was

also drawn to the observations of this Court that decisions cited before

this Court

in the above case were correct in so far as these held that the

price of sales to wholesale dealers would not represent the 'wholesale

cash price' for the purpose of

s. 4(a) of the Act merely because the

manufacturer had entered into agreement with them stipulating

for

commercial advantages. It was laid down that if a manufacturer were

to enter into agreements with dealers for wholesale sales of the articles

manufactured on certain terms and conditions, it would not follow

from that alone that the price for those sales would not be the

'wholesale cash price' for the purpose of

s. 4(a) of the Act if the

agreements were made at arms length and

in the usual course of busi­

ness. This, however, Mr. Rao related only

in explaining the state of

law before the Amendment Act

22 of 1973.

Our attention was also drawn to the observations of this Court in

Union of India & Ors. v. Bombay Tyre International Ltd., [1984] 1

SCR 347 where this Court explained the purpose of the introduction of

'related person' in the new section 4(4)(c) and the transactions of

related person covered under

s. 4( 4)(c) of the Act after amendment. In

that context, it was contended that where there was such relationship

independent of the transaction

in question which conferred certain

additional or extra-commercial advantages only on the persons invol­

ved in such relationship could be considered to be related persons.

It

SNOW WHITE CORPN. v. C.C.E. [MUKHARJI, J.] 795

..

was submitted that in the instant case that was not so. Our attention

was drawn to the observations of this Court

in

Union of India and

A

others v. Atic Industries Limited, [1984] 3 SCR 930, at page 937 of the

report, where this Court held that on a proper interpretation of the

definition

of 'related person' in section 4(4)(c), the words

"relative

and a distributor of the assessee" did not refer to any distributor but

r

they were limited only to a distributor who was a relative of the asses- B

~ee within the meaning of the Companies Act, 1956. So read, the

, definition of "related person" was not unduly wide and did not suffer

from any constitutional infirmity. This Court explained the nature of

relationship required by the persons to have 'interest directly or indi-

rectly in the business of each other' under section 4(4)(c) of the Act.

Our attention was also drawn to the observations of this Court in

c

t

Collector of Central Excise, Madras v. T.l. Millers Ltd. Madras & T.I

Diamond Chain, Madras, [1988] SCC Supp. 361.

Having regard however to the fact that

we have come to the

conclusion

that the Tribunal was right in holding that the transaction

with the Gillanders was not a transaction of sale but an agreement for

D

,

agency, there was, therefore, no sale in favour of Gillanders as con-

tended for the appellants.

If that is the position, then the first sale

~

was by the Gillanders to the customers of the market. Then the price

of that sale would be the assessable value under section 4 in this case.

The decision of the Tribunal is, therefore, right in any view of the

matter, and this other aspect of the matter referred to by the Tribunal E

is not necessary for us to determine to dispose of this appeal. In that

view of the matter, the decision of the Tribunal must be upheld.

Shri Rao, however, further submitted that there were certain

,,...

other claims like cost of transportation and other permissible deduc-

tions such as. duty of excise and sales tax, which should have been

F ,.&.,_

deducted from the value subject to proof by the appellants. Shri Rao

submitted that apart from this, there were other permissible deduc-

lions as envisaged by this Court

in Asstt.

Collector of Central Excise &

Others, etc. v, Madras Rubber Factory Ltd., [1987] 1 SCR 846. It may ,

be observed that apart from cost of transportation, excise duty and

sales tax, other charges were not sought to be deducted

by the appel-G

!ants in the appeal and were not canvassed before the Tribunal too nor

in the grounds of appeal, there

was any such

claim. Shri Rao, howeyer,

submitted that in view of the decision of this Court in Madras Rubber

Factory's

case (supra), the appellants should not be denied the benefit

of these deductions, if they are otherwise entitled to. Though, strictly

speaking that is beyond the scope of the appeal

in view of the conten- H

A

B

c

796 SUPREME CODRT REPORTS [1989] 2 S.C.R.

tions raised in the appeal before the Tribunal and in view of the

grounds

of appeal taken by the appellants before us, but in the interest

of justice, we permit the appellants to have these benefits as finally

settled

by this Court in Madras Rubber Factory's case (supra). We are

informed that the said decision of Madras Rubber Factory

is under

review in this Court. Therefore,

we are of the opinion that subject

to the order passed in that review matter, such deductions, as may

ultimately be held to be deductible be permitted to the

appellant· • "It

upon proof. With these observations, the appeal fails and is according"'

dismissed with no order as to costs.

P.S.S. Appeal dismissed.

'