29 October 1996
Supreme Court


Case number: Appeal Civil 3279 of 1990






DATE OF JUDGMENT:       29/10/1996




JUDGMENT:                             WITH                  C.A. NO. 1621/90, 1622/90                       J U D G M E N T BHARUCHA. J.      There are appeals from the judgments and  orders of the West Bengal Taxation Tribunal to which writ petitions filed in the Calcutta High Court by the appellants were transferred.      The position  being common, the facts that are referred to are  the facts  of C.A. No. 1622 of 1990, where Hindustan Sheet Metal Limited is the appellant.      The State  Trading Corporation  entered into a contract with Government  Trading Corporation of Iran unblended Assam tea were  to be  supplied. In  turn, S.T.C.  entered into  a contract on  4th August,  1986, with  the appellants for the tea, to  which a  copy of S.T.C’s contract with  the Iranian buyer was annexed.      Pursuant  to   the  contract  between  S.T.C.  and  the appellants, the  appellants purchased  from tea auctions the tea to  be  supplied  under  the  aforesaid  contracts.  The deliveries of  the tea  were made to the Iranian buyer under the aforesaid  contracts.  In  June,  1987,  the  appellants received letters  from the auction brokers from whom the tea was purchased  which stated the auction brokers had received notices from the respondent Sales Tax authorities  requiring the appellants  to pay  sales tax  upon the purchases of tea from the  auction brokers.  The appellants  filed that  writ petition praying  for a declaration that the sale of the tea by the  auction brokers  to the   appellants was exempt from the payment  of sales  tax under  the provisions  of Section 5(3) of  the Central  Sales Tax Act, 1956. The writ petition was transferred  for hearing  to the  West  Bengal  Taxation Tribunal. The  Tribunal, after  hearing the parties, came to the conclusion  that the  sales of  the tea  by the  auction brokers to  the appellants  were not exempt from the levy of sales tax under Section 5(3). Hence, the appeal.      Section 5, sub-sections  (1) and (3) read thus: <sls>      "5, When  a  sale  or  purchase  of      goods said  to take  place  in  the



    course of import or export. - (1) A      sale or  purchase of goods shall be      deemed to take  place in the course      of   the export of the goods out of      the territory  of India only if the      sale or  purchase either  occasions      such export  or is  effected  by  a      transfer of  documents of  title to      the  goods  after  the  goods  have      crossed the  customs  frontiers  of      India.  XXX       XXX          XXX      (3)Notwithstanding         anything      contained in  sub-section (1),  the      last sale  or purchase of any goods      preceding  the   sale  or  purchase      occasioning  the  export  of  those      goods  out   of  the  territory  of      India shall also be deemed to be in      the course of  such export, if such      last sale  or purchase  took  place      after and  was for  the purpose  of      complying with,  the  agreement  or      order for  or in  relation  to such      export.      Learned counsel  for the  appellants drew our attention to the  averments of  the appellants  in the  Special  Leave Petition, which   had  also been  made  in  the  proceedings before   the Tribunal,  and were  uncontroverted,  to    the effect that  S.T.C.  had  introduced  what  was  called  the ’consortium approach’  in regard  to the  export of tea from India so  as to  avoid unhealthy  competition between Indian exporters  and   to  obtain   the  maximum  business    from Government organisations  in  foreign  countries,  like  the Iranian buyer,  the Government  Trading Corporation of Iran. Thereunder, S.T.C.  was to  act as  the agent   of   the tea exporters for  securing orders on their behalf and it was to negotiate on  the basis of the individual tea samples of and the prices  indicated by  each exporter. It was in pursuance of this  approach that  the contracts between S.T.C. and the Iranian buyer and the appellants and S.T.C. had been entered into ;  the  Iranian  buyer  had  inspected  the  appellants samples and accepted the appellants price.      Our attention  was drawn  by  learned  counsel  to  the contract between  S.T.C. and  the  appellants,  wherein  the appellants were referred to as the "shipper" and the Iranian buyer as the "buyer".  The  contract recited that S.T.C. had entrusted the  appellants with "the obligation of supply and shipment of  550.000 M/Tonnes  unblended Assam  Tea and  the shipper had  agreed to  perform such  obligation in terms of the contract  between S.T.C.  and the Iranian buyer. The tea should be "as per the sample approved by the foreign buyer". The price  was quoted and was said to be "inclusive of STC’s service charge of 1% of FOB value of the contracted quantity and the  same will be recovered from the  realisation export proceeds. All  other  charges  including  Bank  charges  for negotiation, LC  advising, amendment  charges, etc.  were to the   account   of the  appellants". Markings  would  be  as required by  the Iranian  buyer, but the STC’s logo would be printed   on   each   tea   chest.   The   Iranian   buyer’s representatives and  surveyors, including  STC’s  personnel, would have  access to  visit and  inspect all  phases of the appellants work. The Iranian buyer would also have the right to send  its surveying  the  quantity and quality of tea and all necessary  documents would be counter-signed by them and inserted in  the Letter  of Credit.  The Iranian buyer would



open an  irrevocable,  non-transferable,  non-divisible  and non-confirmed Letter of Credit in  favour of S.T.C., payable against shipping documents, including a full set of clean on board Bills of Lading issued or endorsed to the order of the opening bank  in terms of the Letter of Credit. Each invoice was  required   to  contain   the  necessary  proportion  of different grades  of   tea required to maintain the original samples submitted  by the appellants and the appellants were required to  inform the  Iranian buyer as also the surveyors of the  required proportions  of tea  each    standard.  The contract stated, "All the documents required for negotiation should be  prepared in  4 copies  except  seller’s  official invoice which   should  be 5  copies." (Emphasis  supplied). Payment  would   be  released   to  the   appellants   after negotiation of   documents  and realisation of  the proceeds by STC’s  bankers on  the same had terms and condition under which the  proceeds had been received  by S.T.C.  from their bank. If  the documents  were not  in strict conformity with the  terms  of  the  Letter  Credit,  the  payments  to  the appellants would  be released  under reserve  through  their bankers. All  documents would  be prepared by the appellants marked "A/C  STC" in  all relevant  places and  forwarded to S.T.C. for  negotiation immediately  after shipment.  Export benefits arising  from the  export  of  the  tea  under  the contract would  accrue to the  appellant’s account fully and the S.T.C.  would have  no  share  therein.  The  conditions stipulated in  the Letter  of Credit  would form an integral part of the contract  between S.T.C. and the appellants. The appellants indemnified  STC and  would keep  it  indemnified against all  taxes, claims,  demands, action, losses, costs, expenses, etc.  arising   out of  or  in  respect  of  their contract and  the contract  between S.T.C.  and the  Iranian buyer. Disputes  between  the    Iranian  buyer  and  S.T.C. arising out of the export contract would be solved amicably, as far  as possible, in consultation with the appellants and any agreement  arrived by  S.T.C. thereafter  would be final and binding  on the  appellants ;  otherwise,  such disputes would be finally and exclusively subject to the jurisdiction of Iranian  courts and  law. Disputes between S.T.C. and the appellants  would   also   be   settled   amicably   through negotiations; otherwise,  in the  matter laid  down  in  the arbitration clause in the contract.      Learned counsel   for  the  appellants  submitted  that under the  terms of  contract  between  the  appellants  and S.T.C., S.T.C.  was merely  the agent of  the appellants and there was  no sale  of the  tea by  the appellants to S.T.C. thereunder. The  sale of  the tea  was by  the appellants to the Iranian buyer.      Learned counsel  cited from  the judgment of this Court in the  case of  the Bhopal Sugar Industries Ltd.  vs. Sales Tax Officer, Bhopal, 40 S.T.C. 42, the following :      "It  is   well-settled  that  while      interpreting  the   terms  of   the      agreement, the Court has to look to      the substance  rather than the form      of it. The mere fact that the world      "agent" or "agency" is  used or the      words "buyer" and "seller" are used      to  describe   the  status  of  the      parties concerned is not sufficient      to  lead     to   the  irresistible      inference that  the parties  did in      fact intend   that  the said formal      status would be conferred. Thus the      mere formal description of a person



    as an  agent or  a buyer    is  not      conclusive,  unless   the   context      shows  that   the  parties  clearly      intended to  treat buyer as a buyer      and  not   as  an   agent.  Learned      counsel as  a buyer  and not  as an      agent. Learned    counsel  for  the      appellant  relied   on      several      circumstances   to show  that on  a      properconstruction of the agreement      it could  not, but  be held to be a      contract of   sale. Learned counsel      strongly relied  on a  decision  of      this   Court    in   Sri   Tirumala      Venkateswara Timber and Damboo Firm      vs.   Commercial    Tax    Officer,      Rajahmundry, (1968)  21 S.T.C.  312      at 316  (S.C.),  where  this  Court      held   the transaction to be a sale      in  almost  similar  circumstances.      Speaking for  the court, Ramaswami,      J.  observed as follows :      "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  transferor as  a debtor for      the price  to be  paid and  not  as      agent for  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    will      therefore be  liable to account for      the sale proceeds."      It is  clear from  the observations  made by this Court that the true relationship of the parties in such a 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 said relationship."      In Commissioner  of Sales  Tax, U.P. vs Bishamber Singh Layaq Ram, 47 S.T.C. 80, this Court had said :      "The crucial  test is  whether  the      agent has  any personal interest of      his own  when he  enters  into  the      transaction   or    whether    that      interest   is    limited   to   his      commission   agency   charges   and      certain out of pocket expenses, and      in the  event of any loss his right      to   be    indemnified    by    the      principal."      Learned counsel  for the  appellants drew our attention to the  Tea Export License held by the appellants, which was specific for  the export  of 550  M/tonnes of   tea to Iran. This license  was requisite  under the provisions of Section



17 of  the Tea  Act, 1953.  Our attention  was drawn  to the invoice issued  by the appellants, which stated that the tea had been sold to the foreign buyers and it was signed by the appellants after stating "A/c. The State Trading Corporation of India Ltd.". The Bill of Lading issued in  respect of the tea by  the Irano-Hind  Shipping Company  Ltd. showed  State Trading Corporation  of India  Ltd." were  typed immediately after  the  appellant’s  name  and  address  in  the  column "Shipper" only to identify the tea with the contract between the Iranian  buyer  and  S.T.C.  Learned  counsel  drew  our attention to  the fact  that the advantage of duty draw back in respect  of the  aforesaid contract  had been received by the appellants.  In his  submission, the property in the tea had not passed from the appellants to S.T.C. The purchase of the   tea by the appellants at  the auctions was, therefore, the penultimate sale in the course of export and, therefore, exempt from  the levy  of sales  tax by  the  provisions  of Section 5(3).  Learned counsel  for the respondent Sales tax authorities  submitted  that  the  export  sale  covered  by Section 5(1)  was the  sale of  the tea  by  S.T.C.  to  the Iranian buyer;  the penultimate sale in the course of export was the  sale of  the tea  by the appellant to S.T.C., which was covered  by the  provisions of  Section 5(3); therefore, the purchase  by the   appellants of the tea at the auctions was exigible to sales tax.      Learned counsel  for the respondents drew our attention to the  judgment of  this Court  in Mod.  Serajuddin vs. The State of  Orissa, 36  STC 136.  This was  a case  in  which, admittedly, the  Indian company had sold the goods to S.T.C. The situation,  therefore, was  entirely different  and  the judgment has   no application to the present case, where the contention on  behalf of  the appellants  is that S.T.C. was only the  agent of  the appellants. We should also note that the judgment in Mod. Serajuddin case led to the introduction of sub-section  (3) in  Section 5  (see Statement of Objects and Reasons  thereof) so  that the judgment does not reflect the law as it now stands.      Learned counsel for the respondents pointed out that in the  contract   between  the   appellants  and  S.T.C.,  the appellants were  referred to  as  the  shipper  not  as  the seller, whereas  the   Iranian buyer  was referred to as the buyer. Emphasis  was laid  upon the  fact that all documents were required  to prepared  by the  applications marked "A/C STC" in  all relevant places and  these were to be forwarded to the  S.T.C. for  negotiation. It was pointed out that the contract contemplated disputes between the Iranian buyer and the  appellants.   Learned  counsel  for  the    respondents referred to  the Bill  of Lading  and submitted  that it had been endorsed  in favour  of  S.T.C.  and  that,  by  reason thereof, the  property in  the tea  had passed to the S.T.C. The endorsement  was by   the typing of  the words "A/C. The State Trading  Corporation of India Ltd." after the name and address of  the appellants  in the column "Shipper" upon the Bill of Lading.      In our  view, no  term  in  the  contract  between  the appellants and S.T.C clearly a sale, that is the transfer of property in  the tea  from the  appellants  to  S.T.C.  Such indication as  there is  to the  contrary, particularly  the requirement that the appellants should prepare all documents required  for   negotiation  and   the  "seller’s   official invoice..... should  be in  5 copies".  The requirement that the words  "A/c STC"  be used was only to enable the Iranian buyer to  identify the  tea as  being sent in fulfillment of the obligation under the contract between S.T.C. and itself.      The manner in which the contract between the appellants



and S.T.C.  was executed reinforces our view. The Tea Export License for the tea was that of the appellants.  The invoice of the  appellants showed  the  Iranian  buyer  against  the column, "Sold  To", and  no objection  in  this  regard  was raised by S.T.C. The duty draw back benefit accrued entirely to the appellants. The Bill of Lading issued  by the  Irano- Hind Shipping  Co. Ltd.  showed the  Iranian buyer’s Teheran bank as consignee of the tea shipped by the appellants.      Certainly, there  is no  endorsement  on  the  Bill  of Lading  in   favour  of   S.T.C.  that   would  suggest  the transference to  it of  title in the tea. The typing  of the words "A/c  The state of Trading Corporation of India" below the name  and address  of the  appellants against the column "Shipper" does   not constitute an endorsement. There was no endorsement upon  the Bill  of Lading signed by or on behalf of the  Teheran bank, which is the consignee, or the Iranian buyer.      There is,   therefore, nothing  in the contract between the appellants and S.T.C. or in the manner of  its execution that establishes  that there  was a transfer of the property in the   tea  by the  appellants to  S.T.C.  before  it  was transferred to  the Iranian  buyer. Hence,  the  purchase of the tea  by the appellants at the auctions in fulfillment of the  export   obligation  to   the  Iranian  buyer  was  the penultimate sale  in the course of export and covered by the terms of  Section 5(3). It was, accordingly, exempt from the payment of sales tax.      In the result, the appeals succeed and are allowed. The judgment and  order of  the Tribunal   is  set aside and the rule in  the writ  petitions filed by the appellants is made absolute.      There shall be no order as to costs.