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PETITIONER: STATE OF MADRAS

       Vs.

RESPONDENT: CEMENT ALLOCATION CO-ORDINATING ORGANISATION

DATE OF JUDGMENT01/09/1971

BENCH:

ACT: Madras General Sales Tax Act 1959 and Rules-Agent a ’dealer’ under  s.  2(9)-Packing  materials  deductible  from   total turnover  under r. 6(c) (II)-Agent selling cement on  behalf of  principal-Price of packing material shown separately  in bills--Agent  is entitled to some exemptions  as  principal- Deduction  in  respect  of  packing  material  when  can  he claimed.

HEADNOTE: The assessee (respondent herein) was the selling agent of  a cement  company.  Under s. 2(g) of the Madras General  Sales Tax  Act,  1959 the term ’dealer’ is defined  to  include  a commission agent. in February 1967 the Deputy Commercial Tax Officer,  Lalgudi. asked the assessee to show cause why  its turnover relating to the price of the packing material  used in  packing the cement sold ’should not be included  in  its taxable  turnover  under the Madras General Sales  Tax  Act, 1959.   The  assessee thereupon moved the High  Court  under Art. 226 of the Constitution.  In its petition the  assessee averred  that  its  rights were the same  as  those  of  its principal  and  since  the price  of  packing  material  was separately  shown in the bills the same was deductible  from the  total  turnover in view of r. 6(c) (ii)  of  the  Rules under  the Act.  The High Court held that the  assessee  was entitled  to  deduct from its total  turnover  the  turnover relating to the packing charges if its principal would  have been entitled to deduct the same had the principal sold  the cement  in question directly.  The question whether  in  the present  case the principal was so entitled was not  decided by the High Court.  The State appealed to this Court. HELD : Under the general law the agent merely represents the principal.  Therefore while functioning within the scope  of the  agency  he  can  exercise  all  the  rights  which  his principal  could have exercised.  This provision  must  hold good  even  under the Madras General Sales  Tax  Act  unless otherwise  provided therein.  The fact that for the  purpose of  that  Act an agent is considered as a  dealer  does  not alter  the legal position in other respects.   Excepting  to the  extent otherwise provided in the Act the agent must  be held to represent his principal while dealing with the goods of  his  principal; he merely steps into the  shoes  of  his principal.   He  is entitled to the same exemptions  as  his principal  would  have got had he dealt with  the  concerned goods  himself.   The  decision of the High  Court  to  this effect was correct. [550 H-551 B; 552 E] [The question whether the principal in the present case  was entitled  to the exemption claimed having been left open  by the  High Court, this Court did not find itself called  upon to  decide that question.  However it drew the attention  of

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the assessing authority to the principles laid down by  this Court in the case of the Hydrabad Deccan Cigarette Factory.] [551 C] Hyderabad  Deccan  Cigarette  Factory  v.  State  of  Andhra Pradesh, S.T.C. 17 p. 624, referred to. 549

JUDGMENT: CIVIL  APPELLATE  JURISDICTION : Civil Appeal  No.  2300  of 1968. Appeal from the judgment and order dated October 18, 1967 of the Madras High Court in Writ Petition.No. 637 of 1967. Bishan Narain and A. V. Rangam, for the  appellant. S. T. Desai and B. P. Maheshwari, for the respondent. The Judgment of the Court was delivered by Hegde,  J.  This  appeal  by  certificate  arises  from  the decision  of the High Court of Madras in Writ  Petition  No. 637  of 1967.  The petitioner before the High Court is  M/s. Cement Allocation Coordinating Organization, a selling Agent of  Dalmia Cement (Bharat) Ltd.  That Organization  will  be hereinafter ’referred to as the ’assessee’.  On February 28, 1967 the Deputy Commercial Tax Officer, Lalgudi wrote to the assessee  to  show cause why its turnover  relating  to  the price  of the packing materials used in packing  the  Cement sold  should not be included in its taxable  turnover.   The assessee  instead  of showing cause  against  that  proposal moved  the  High Court of Madras under Article  226  of  the Constitution  to  direct  the  assessing  authority  not  to include  that  turnover in its taxable turnover.   The  High Court  entertained that Writ Petition.  It would  have  been proper  if the High Court had directed the assessee  to  put forward  its  case before the authorities under  the  Madras General  Sales  Tax Act 1959.  Now that the High  Court  had entertained  the Writ Petition and gone into the  merits  of the  case, it serves no useful purpose to refuse to go  into the merits of case. In  its  Writ Petition the assessee had  definitely  averred that  it  was  functioning as the  agent  of  Dalmia  Cement (Bharat)  Ltd.  and its rights are the same as that  of  its principal.   It  was further alleged in the  Writ  ’Petition that  when cement was sold in packages, the packing  charges were  separately shown in the bill,,, issued to the  buyers. On these grounds the assessee claimed that it is entitled to deduct those charges from its total turnover in view of rule 6(c) of the Rules framed under the Madras, General Sales Tax Act,  1959.  The plea of the assessee that it was the  Agent of  Dalmia Cement (Bharat) Ltd. during the  relevant  period was  not  denied in the return filed by the State  of  Tamil Nadu.   It was also not denied that the assessee  had  shown the packing charges separately in the bills issued by it  to the  Purchasers of cement.  On the basis of  those  admitted facts  the  High  Court  came to  the  conclusion  that  the assessee  is entitled to deduct from its total turnover  the turnover  relating to the packing charges if its  principals would  have been entitled to deduct the same had  they  sold the  cement in question directly.  The operative portion  of the High Court reads thus: 550               "The  petition is allowed but with  no  costs.               We  may, however, add that the order  We  have               made  in  this petition does not  in  any  way               prevent the assessing authority from examining               the  question,  after giving a  fresh  notice,

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             whether   the  principal  himself   would   be               disentitled  to exclusion of the value of  the               packing    materials   in   determining    the               chargeable turnover." It  is against this order that the State of Madras has  come up in appeal to this Court. The charging section under the Madras General Sales Tax Act, 1959  is section 3. It brings to all taxable turnover  of  a dealer  as defined in the Act.  The expression  "dealer’  is defined  in section 2 (g).  Because of section  2(g)(iii)  a Commission  agent is also considered as a ’dealer’  for  the purpose  of the Madras General Sales Tax Act,  1959.   Hence the  taxable turnover of a Commission agent is liable to  be brought to tax.  The only other provision that we need refer is  rule  6 of the Rules framed under the  Act.   That  rule reads :               "The  tax  or taxes under section 3,  4  or  5               shall be levied on the taxable turnover of the               dealer.  In determining the taxable  turnover,               the amounts specified in the following clauses               shall,  subject  to the  conditions  specified               therein,  be deducted from the total  turnover               of a dealer :-               (c)   all amounts falling under the  following               two  heads, when specified and charged for  by               the dealer separately, without including  them               in the price of the goods sold               (i)   freight; and               (ii)  charges  for  packing, that is  to  say,               cost  of packing materials and cost of  labour               and other such like services." The  first question that we have to consider is  whether  an agent  of a principal who is also a dealer under the Act  is entitled  to the same rights as his principal has under  the Act.  Under the general law the agent merely represents  his principal, Therefore, while functioning within the scope  of the  agency  he  can  exercise  all  the  rights  which  his principal could have exercised.  In fact, in the case of  an ordinary  agency,  the agent merely acts for  Ms  principal. This provision must hold good even under the Madras  General Sales  Tax Act unless otherwise provided therein.  The  fact that for the purpose of that Act an agent is considered as 551 a  dealer  does  not  alter  the  legal  position  in  other respects.  Excepting to the extent otherwise provided in the Madras  General Sales Lax Act the, agent must he,  held  to represent his principal white dealing with the goods of  his principal; he merely steps into the shoes of his  principal. He is entitled to the same exemptions as his principal would have  got  had he dealt with the  concerned  goods  himself. Agents  are  considered as dealers under the tax  so  as  to effectively  enforce  the provisions of the Act.   But  that provision does not convert an agent into a principal for all purposes under the Act. But  the question whether the principal is entitled  to  the exemption  claimed  has been left open by  the  High  Court. That  question has to be decided after going into the  facts of the case.  How than question should be, decided has  been laid down by this Court in Hydrabad Deccan Cigarette Factory v.  The State of Andhra Pradesh(1).  Therein this Court  has ruled  that  it is for the department to  establish  that  a particular  turnover  constitutes  a part or  whole  of  the taxable turnover.  For establishing that fact the department may  call  upon  the  assessee to  produce  before  it  such material  which the assessee has in his possession or  under

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his control.  The department before coming to the conclusion that  a  particular  turnover  is  taxable  must  take  into consideration  all the facts and circumstances of the  case. On  the question whether certain packing charges are  exempt from tax, the authorities under the Act before deciding that question have to take into consideration the various aspects mentioned in that judgment.  This is what the Court observed therein:               "In the instant case, it is not disputed  that               there were no express contracts of sale of the               packing materials between the assessee and its               customers.  On the facts, could such contracts               be  inferred ? The authority concerned  should               ask  and  answer  the  question  whether  the,               parties in the instant case, having regard  to               the  circumstances  of the case,  intended  to               sell or buy the packing materials, or  whether               the  subject matter of the contracts  of  sale               was  only the cigarettes and that the  packing               materials did not form part of the bargain  at               all, but were used by the seller as a  conven-               ient  and cheap vehicle of transport.  He  may               also  have to consider the  question  whether,               when  a trader in cigarettes  sold  cigarettes               priced at a particular figure for a  specified               number and handed them over to a customer in a               cheap  card-board container  of  insignificant               value,  lie  intended to  sell  the  cardboard               container and               (1)   STC 17 p. 624.               552               the customer intended to buy the same’.  It is               not possible to state as a proposition of  law               that whenever particular goods were sold in  a               container  the parties did not intend to  sell               and buy the container also.  Many cases may be               visualized  where  the  container  is   compa-               ratively  of  high value  and  sometimes  even               higher  than that contained in it.   Scent  or               whisky may be sold in costly containers.  Even               cigarettes  may  be  sold in  silver  or  gold               caskets.   It  may be that in such  cases  the               agreement  to  pay  an  extra  price  for  the               container may be more readily implied.  In the               present  case, if we may say so with  respect,               all the authorities, including the High Court,               dealt  with the question as a question of  law               without considering the relevant factors which               would sustain or negative any such agreement. The  determining  factor in all such cases  is  whether  the buyer directly or by implication agree to buy and the seller to  sell, separately the packing material.  In this case  we are  not  called upon to go into that question.   We  merely indicated the approach as a matter of guidance. The question for decision by us lies within a narrow compass and  that question is whether the, assessee is  entitled  to claim  exemption  in  respect  of  packing  charges  if  his principal  could  have  claimed it had it  sold  the  cement itself.   On that question, we agree with the view taken  by the High Court. For the reasons mentioned- above, this appeal fails and  the same is dismissed.  No costs. G.C.                    Appeal dismissed. 1340Sup.CI/71-2500-(Sec.VII)-26-9-72-GIPF. 553

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