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PETITIONER: SNOW WHITE INDUSTRIAL CORPORATION, MADRAS

       Vs.

RESPONDENT: COLLECTOR OF CENTRAL EXCISE, MADRAS

DATE OF JUDGMENT28/04/1989

BENCH: MUKHARJI, SABYASACHI (J) BENCH: MUKHARJI, SABYASACHI (J) RANGNATHAN, S.

CITATION:  1989 AIR 1555            1989 SCR  (2) 782  1989 SCC  (3) 351        JT 1989 (2)   410  1989 SCALE  (1)1328

ACT:     Central  Excises  and  Salt Act,  1944:  ss.  4(1)(a)  & 35-L--(b)  Assessee--Excisable. goods sold through  ’selling agents’--Assessable  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.

HEADNOTE:     The assessee-appellants, a partnership firm carrying  on manufacturing  business in Madras entered into an  agreement with  a company 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  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 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 be mutually agreed from time  to time between them and the selling agents, that any reduction in price during the currency of the agreement was to be duly reflected in the price of stock lying unsold with the  sell- ing  agents, and that on termination of the contract  either by  the assessee or by the selling agents, the unused  stock lying with the latter 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  sell- ing  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  ex- cisable  goods were sold by them to the selling  agents  and sought refund of

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783 the excess excise duty thus paid. The Assistant Collector of Excise and 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 goods 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 for sale. On an  analy- sis  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  appel- lants.  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  understood under  s. 4(4)(c) of the Act and, therefore, the  assessable value  of the goods for levy of excise duty must be  on  the basis  of price at which the selling agents ordinarily  sold these in the course of wholesale trade less the  transporta- tion  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  con- tended   for   the   appellants,   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  de- scribed  as ’sole selling agents’, that the appellants  were manufacturing a product which was liable to lose its effica- cy 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 trans- portation  and other permissible deductions such as duty  of excise  and sales tax to 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 agreement  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 parties is not decisive of the legal relationship. [789F, 793D] 784     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  be paid. The transferee in such a case is liable to the  trans- feror  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  responsibility.  [793C, 792A]     1.3  In the instant case, the most important  fact  sug- gesting 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

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and any reduction in price during the currency of the agree- ment  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 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  transaction with the selling agents was not a  transac- tion  of  sale but an agreement for agency. If that  be  so, then the first sale was by the selling agents to the custom- ers of the 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 wheth- er the selling agents were ’related persons’ in terms of  s. 4(4)(c) of the Act. [795DE]     W.T. Lamb & Sons v. Goring Brick Company Ltd., [1932]  1 KB  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.       Though apart from cost of transportation, excise  duty and sales tax. other charges were not sought to be  deducted by  the  appellants  in 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., [1987] 1 SCR 846 subject to  the order passed in the review matter. [795G, 796AB] 785

JUDGMENT:     CIVIL  APPELLATE JURISDICTION: Civil Appeal No. 4159  of 1984.        From  the Judgment and Order dated 20.1. 1984 of  the Customs,  Excise and Gold (Control) Appellate Tribunal,  New Delhi in Appeal No. ED(SB)(T) 644/81-A (Order No. A29/84).     P.P.  Rao, Rameshwar Nath, D.N. Mehta and Ravinder  Nath for the Appellants.      V.C.  Mahajan, Arun 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 to as ’the Act’) from the judgment and order of the Customs, Excise & Gold (Control) Appellate Tribunal (herein- after referred to as ’the Tribunal’) dated the 20th January, 1984.     The appellants are the manufacturers of ’Supercem Water- proof  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  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  Cal- cutta, hereinafter called ’Gillanders’. The said company has a very big sales organisation having its offices located  at all important places in the territory of 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

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India.  The appellants 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  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  re- jected  the contention of the appellants and held  that  the assessable  value is the price at which Gillanders sold  the goods. 786     The  Tribunal  in  its order dated  20th  January,  1984 referred to relevant clauses in the said agreement dated 1st May, 1962 and came to the conclusion that it was  abundantly clear  from the conditions that the title to and the  owner- ship 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 contend that it was an agreement for  sale. The Tribunal on an analysis of conditions of agreement, came to  the conclusion that the true character 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)  of  the Act and held that  Gillanders  was  a related  person and, therefore, 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 this appeal to this Court.     The first question that was canvassed and which requires to  be  determined is whether the agreement dated  1st  May, 1962  is  an agreement for sale or is one for  sole  selling agency.     In  the  said agreement, the appellants  have  been  de- scribed 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  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 and sealed.  The agreement 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 Railways, provided, howev- er,  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  manufac- turer should pay the selling agents a discount, namely,  17- 1/2  %  on  the transfer prices of  all  materials  supplied against the orders received from the selling agents 787 from its offices at Calcutta, Kanpur, Delhi and Bombay;  18% on the 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

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1 1/2 % on the net transfer price, that is to say,  transfer price less the discount specified above provided the selling agents paid the price of the goods supplied by the  manufac- turer  within  30  days from the date of the  bills  by  the manufacturer  in  respect 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  by  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 Rs.  4 lakhs  per annum and 1-1/2% 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 would 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  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  neces- sary publicity materials and to advertise at their own  cost at  regular intervals through the media of the daily  press, 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  of the  products,  it  was stipulated, would be  borne  by  the selling agents. It was, inter alia, provided that the  sell- ing  prices  and  transfer prices of the  product  would  be mutually agreed to from time to time between the manufactur- er and the selling agents. Current selling prices and trans- fer prices were set out in the schedule to the agreement. It was stipulated also that the selling agents might allow  any discount to any dealer at their discretion. The manufacturer agreed to execute and despatch orders to all dealers outside the  State  of Madras, provided firm instructions  were  re- ceived to that effect from 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 788 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.C).R.  station  of despatch or destination terms.  If  the goods  supplied  by the manufacturer were found to  be  sub- standard  goods  or  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 circumstances beyond  the control  of  the manufacturer, shortage of  labour,  cut  or

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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 the fight to terminate the agreement by giving three  months notice in writing to either side. It was further  stipulated that if the agreement was terminated whether by the manufac- turer  or  by the selling agents,  the  manufacturer  should accept  return of all unsold stocks lying with  the  selling agents at their various branches and to reimburse the  sell- ing agents with the net value of such stocks at the transfer prices in force on the date of the termination of the agree- ment.  There was arbitration clause and other clauses  which 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 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  Gil- landers  were  to promote sales of  the  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  . transactions  and were to be paid an over-riding  commission of 2-1/2%. 789 Where, however, Gillanders tendered for Government  supplies and followed it up, they were to be paid a commission of 5%. In  all  other cases, they were to earn  a  commission,  de- scribed, however, as a discount and additional cash discount apart  from total sales discount in case where  total  sales exceeded  Rs. 4 lakhs, on the orders received from  Gilland- ers. The Tribunal also referred to the clause which provided that on termination of the agreement by either party, unsold 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, continued 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  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 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  submitted 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 and the second one the real purchaser.

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   It is well settled that in a situation like this, wheth- er there was an agreement for sale or an agreement of  agen- cy, 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. It  is also  correct that though the appellants described the  Gil- landers as selling agent, but that 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  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 agreement 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 790 intended in the future to sell their goods themselves  with- out  the  intervention  of any agent,  and  thereafter  they effected  sales to customers directly. In an action  by  the merchants against the manufacturers for breach of the agree- ment, 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  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  circum- stances,  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 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  per- sons  to  sell, to various builders  and  contractors.  Lord Justice  Slesser was of the view that the agreement  in  the present  case was somewhat difficult to understand,  because in one and the same document the same parties were described 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  agree- ment  was one of vendor and purchaser. Referring to some  of the  contract terms in the instant case, Shri Rao  submitted that in this case also, the terms referred to by the  Tribu- nal and emphasised before us by Shri Mahajan, learned  coun- sel  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.     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  that  the appellant was buying the goods for resale in U.K. The  price quoted  was C.I.F. less 2-1/2%. The contracts also  provided that  time should be the essence of the contract,  that  the

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sales  tax was on respondent’s account, that the  respondent was  answerable  for weight as well as quality,  that  there should  be  a lien on the goods for moneys advanced  by  the appellant, and that any dispute regarding quality should  be settled by arbitration according to the customs of the trade 791 in  the U.K. The course of dealing between them showed  that before  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 respondent’s goods and  that  the appellant  was  not an agent of the  respondent.  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 contracts and not his agent for sale, and there- fore,  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, where- as 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- 1/2  %  less and sold them to the London purchasers  at  the full price so that the 2-iii % 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  outside  the terms of the contract, that the appellant considered it fair and  just to pay the whole of the premium to the  respondent or  to  share it with him, and that 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  was also of the opinion that  the  clause  with regard to lien was consistent with the transaction being  an outright sale, because the appellant was acting as  creditor of the respondent and charged interest on advances only till the date of shipment of the goods when it became 792 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  subjected  to  a process  of trimming and reassortment in the godown  of  the

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appellant with a view to make them conform to London  stand- ards. In that process, the defendants often called upon  the plaintiff  to  replace the pieces found  defective.  If  the defendants  were  merely acting as agents,  this  Court  ob- served,  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 were merely bound to ship the goods as these were delivered to them. Another important feature of the transac- tion  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 also made to the fact that the contract  pro- vided  for a lien on all the goods covered by the  contracts for  all  moneys advanced by the defendants,  including  ex- penses 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 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  ob- ject,  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 an agent paid the price to the principal  on his own responsibility. Reference was made  to the  passage from Blackwood Wright, ’Principal  and  Agent’, Second Edn., page 5, at page 10 of the Report, where it  was stated that in commercial matters, where the real  relation- ship  was that of vendor and purchaser, persons  were  some- times  called agents when, as a matter of fact, their  rela- tions  were  not those of 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 money of the  con- signors, or that the relation of principal and agent 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  back- ground of the Andhra Pradesh General Sales Tax Act, 1957 was considered.  At page 480 of the report, this Court  observed that  as a matter of law, there is a distinction  between  a contract of sale and a contract of agency by 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  trans- feror 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

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gathered  from  the nature of the contract,  its  terms  and conditions,  and the terminology used by the parties is  not decisive  of the legal relationship. 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  emphasised  by the Tribunal clearly established that this was an  agreement of agency and not a sale.     As  mentioned hereinbefore, it depends on the facts  and circumstances  of each case to determine the true nature  of the  dealings between the parties. 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. 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 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 stock 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 794 the aforesaid light we are of the opinion that 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.     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 independently of the  transac- tion  in  question.  He drew our attention  to  the  various authorities  for the proposition that the purpose of  intro- duction  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  observations  of this  Court in A.K. Roy v. Voltas 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 whole- sale  dealers conferred 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  advan- tages. 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  pur- pose  of s. 4(a) of the Act if. the agreements were made  at

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arms  length  and  in the usual course  of  business.  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  pur- pose  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  rela- tionship  independent of the transaction in  question  which conferred certain additional or extra-commercial  advantages only  on the persons involved in such relationship could  be considered to be related persons. It 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 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 ’relat- ed  person’  in section 4(4)(c), the words "relative  and  a distributor of the assessee" did not refer to any  distribu- tor  but they were limited only to a distributor who  was  a relative of the assessee 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 Collector of Central Excise, Madras v. T.I. 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 agency, there was, therefore,  no sale  in  favour of Gillanders as contended for  the  appel- lants.  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  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 deductions such as duty of excise and sales tax, which  should have been deducted from the value  subject  to proof by the appellants. Shri Rao submitted that apart  from this,  there were other permissible deductions as  envisaged by  this Court in Asstt. Collector of Central Excise &  Oth- ers,  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 appellants in the appeal and  were  not canvassed  before  the Tribunal too nor in  the  grounds  of appeal, there was any such claim. Shri Rao, however, submit- ted  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  other- wise  entitled to. Though, strictly speaking that is  beyond the scope of the appeal in view of the conten-

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796 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  appellants  upon proof. With  these  observations,  the appeal  fails and is accordingly dismissed with no order  as to costs. P.S.S.                            Appeal dismissed. 797