Holding

The agreement is an agency, not a sale; therefore the assessable value is the price at which the selling agent sells to customers, and permissible deductions are allowed.

Summary

Snow White Industrial Corporation, a Madras partnership manufacturing paint, entered into a written agreement with Gillanders Arbuthnot & Co., a Calcutta firm, designating Gillanders as the "sole selling agents" for its product across India. The agreement contained clauses for return of unsold stock after two years, replacement of defective goods, and various discounts, but the title to the goods remained with Snow White. The Central Excise authorities assessed excise duty based on the price at which Gillanders sold the goods to customers, which Snow White contested, claiming the assessable value should be the transfer price to Gillanders and seeking refunds. The Tribunal held that the arrangement was an agency, not a sale, and that the assessable value should be the selling price to customers, also allowing permissible deductions such as transportation cost, excise duty, and sales tax. On appeal, the Supreme Court affirmed the Tribunal’s view that the contract was an agency, upheld the assessable value determination, and permitted the deductions, dismissing the appeal.

Issues considered

Whether the agreement between the manufacturer and the selling agent constitutes a contract of sale or an agency (sole selling agency).
Whether the selling agent qualifies as a 'related person' under section 4(4)(c) of the Central Excises and Salt Act, 1944.
What is the correct assessable value for excise duty – the transfer price to the selling agent or the price at which the selling agent sells to customers.
Whether permissible deductions (transportation cost, excise duty, sales tax) may be allowed in computing the assessable value.

Legislation cited

Central Excises and Salt Act, 1944s. 35-L(b), s. 4(1)(a), s. 4(4)(c)
Indian Contract Act, 1872s. 182

Subjects

excise dutyassessable valueagency contractsale contractrelated personCentral Excise Actdeductionstransfer priceselling pricesole selling agentpartnership firmmanufacturing

Judgment

SNOW WHITE INDUSTRIAL CORPORATION, MADRAS
A
v.
COLLECTOR OF CENTRAL EXCISE, MADRAS

APRIL 28, 1989

B [SABYASACHI MUKHARJI ANDS. RANGANATHAN, JJ.]

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.
c 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
was to be returned to the former.
G
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 B
{ ·~. 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
c
~ 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 D
~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 E
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 F
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,
G
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
parties is not decisive of the legal relationship. [789F, 793D] H
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
A
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
B 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
c 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., I1987] 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 c
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 (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
B 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:{
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 f--
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%.
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
stocks lying with the Gillanders were to be returned to the appellants.
'.!-- On an analysis of the aforesaid aspects of the clauses, the Tribunal
B

· 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
Tribunal came to the conclusion that it was an agreement for sole
c
~· 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- 112 % . 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 B
, 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 c
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 D
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 E
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- 112 %
less and sold them to the London purchasers at the full price so that the F
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
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-
pal and Agent', Second Edn., page 5, at page 10 of the Report, where A.
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.
A
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
the report, this Court observed that as a matter of law, there is a B

.t
· 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 the proceeds of the sale. The essence of agency to sell is the c
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 D
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. 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.

Shri Rao had contended that the Tribunal ·was wrong in holding
B 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
c 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-
D 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
E 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
F 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
G 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-
H 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
others v. Atic Industries Limited, [1984] 3 SCR 930, at page 937 of the
A

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-
~ee within the meaning of the Companies Act, 1956. So read, the
, definition of "related person" was not unduly wide and did not suffer
B

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

A 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
B 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.
c

'