G. Gilda Textile Agency vs State of Andhra Pradesh

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeals Nos. 397 and 398 of 1961

Decision Date: 19 April, 1962

Coram: M. Hidayatullah, S.K. Das, J.C. Shah

In this case the Court recorded that the dispute was between G Gilda Textile Agency and the State of Andhra Pradesh, and that the judgment was delivered on 19 April 1962. The matter was heard by a bench consisting of Justice M Hidayatullah, Justice S K Das and Justice J C Shah. The citation of the decision was given as 1966 AIR 1402 and 1963 SCR (2) 248. The petition concerned the application of section 14A of the Madras General Sales Tax Act, 1939 (Mad. 9 of 1939) to the appellant’s activities as an agent of non‑resident principals who dealt in cloth. The appellant contended that it was merely an agent and therefore not a dealer within the meaning of the statute, while the State of Andhra Pradesh asserted that the appellant should be held liable for sales tax on its turnover for the years 1954‑55 and 1955‑56.

The Court recounted that the appellant acted as an agent in Andhra Pradesh for several principals who were residents outside the State. In some transactions the appellant earned commission only on orders that it booked, and in other transactions it earned commission on all sales effected by the principals within the territory. The appellant’s role included booking orders, receiving railway receipts from the outside principals, delivering the orders to buyers, and at times collecting payments and remitting them to the principals. The appellant was assessed sales tax on its total turnover for the two fiscal years mentioned. The principal question before the Court was whether, by carrying out those transactions, the appellant qualified as a dealer under section 14A of the Act. The Tribunal had held that the appellant was indeed a dealer, and the Andhra Pradesh High Court affirmed that decision, reasoning that the non‑resident principals were conducting sales in the State and that the appellant acted either on behalf of the principals or on its own account, rendering it liable. The Court accepted the High Court’s view, noting that section 14A expressly made an agent fictitiously liable as a dealer irrespective of the size of its turnover, and distinguished the earlier case of Mahadayal Premchandra v Commercial Tax Officer, Calcutta, [1959] S C R 551.

The procedural history set out by the Court indicated that the matter arose as Civil Appeals Nos 397 and 398 of 1961, filed by special leave from the Andhra Pradesh High Court judgment and order dated 19 September 1958 in Tax Revision Cases Nos 62 and 63 of 1956. The appellant was represented by counsel for the appellants, while the State was represented by counsel for the respondents. The Court noted that the two appeals were directed against a common order of the High Court under section 12‑B(1) of the Madras General Sales Tax Act, 1939, and that the issues concerned the levy of sales tax on the appellant’s turnover for the years 1954‑55 and 1955‑56. The judgment of the Court was delivered by Justice Hidayatullah, who commenced the analysis of the appeals filed by G Gilda Textile Agency, Vijayawada, against the State of Andhra Pradesh.

In this case, the Court noted that the appellant’s turnover for the fiscal years 1954‑55 and 1955‑56 was the subject of the assessment. The appellant acted as an agent for several non‑resident principals, and on their behalf it booked orders and dealt with the indents. The relationship between the non‑resident principals and the appellant was documented by three agreements reproduced in the record and labelled as Exhibits A‑3, A‑3(a) and A‑3(b). Under those agreements the appellant was appointed as an indenting agent in Andhra Pradesh for cloth merchants who, as the parties admitted, lived and carried on business outside Andhra Pradesh. The appellant’s duties under the agreements required it to book orders, forward those orders to the principals and receive commission on the sale of goods dispatched to Andhra Pradesh. In some instances the commission was payable only on the orders booked by the appellant, while in other instances it was payable on all sales effected by the principals within the territory.

The Court observed that the appellant’s business could be divided into three distinct categories. In the first category the appellant took delivery of the goods, identified buyers and delivered the goods to those buyers. This category of sales was held to fall within the scope of the Madras General Sales Tax Act, and consequently the appellant was liable to pay tax on those transactions. The appellant did not dispute this portion of the decision. In the second category the appellant merely booked orders and forwarded them to Bombay, after which the principals sent the goods, together with railway receipts, through the banking system to purchasers in Andhra Pradesh. The Court found that the appellant’s connection with those sales was sufficient to deem it a “dealer” as defined in the Madras General Sales Tax Act, and those sales were therefore excluded from the appellant’s turnover. No dispute arose concerning this second category. The third category involved goods sold by the outside dealers to buyers in the State. In these transactions the appellant, besides booking the orders, received the railway receipts from the outside principal, handed the receipts to the buyers and, on certain occasions, collected and transmitted the payment to the outside principal. The period covered by these transactions fell under the Sales Tax Validation Act, 1956, so no constitutional question arose. The sole issue remaining was whether the appellant met the definition of a “dealer” under section 14‑A of the Madras General Sales Tax Act and therefore attracted liability for tax.

The Court further noted that the appellant had failed to produce any correspondence between itself and the non‑resident principals, nor any covering letters that would ordinarily accompany the railway receipts. As a result, the Tribunal inferred that the railway receipts must have been endorsed by the sellers either in favour of the appellant or in blank, thereby enabling the appellant to claim the goods from the railway or to negotiate them. On that basis, the Tribunal held that the appellant should be deemed a “dealer” within the meaning of section 14‑A and was consequently liable to tax under that provision. Section 14‑A of the Act reads as follows “In …” (the remainder of the provision continues in the succeeding text).

Section 14‑A of the Madras General Sales Tax Act defines the circumstances in which a person who resides outside the State but engages in the business of buying and selling goods within the State – referred to in the section as a “non‑resident” – is subject to the provisions of the Act, subject to certain modifications and additions. First, where a non‑resident conducts business in the State, his agent who is resident in the State shall be treated as the dealer for the purposes of the Act. Second, that resident agent shall be assessed to tax, or taxes, at the rate or rates applicable to the business of the non‑resident in which the agent is involved, and this assessment applies even if the turnover of that business is below the minimum turnover specified in Section 3(3). Third, without affecting any other rights, the agent who is assessed under the Act for the non‑resident’s business may retain from any monies payable to the non‑resident by the agent an amount equal to the tax or taxes that have been assessed on or paid by the agent. Fourth, where the turnover of the non‑resident’s business is less than the minimum prescribed in Section 3(3) and consequently no tax would otherwise be payable by the non‑resident in the State, the non‑resident is entitled to have the amount of tax or taxes paid by his agent refunded to him, or to make an application to the appropriate assessing authority. If more than one assessing authority is concerned, the application may be made to the authority designated by the State Government through a general or special order. Fifth, any such application for refund must be filed within twelve months from the end of the year in which the tax or taxes, or any part thereof, were paid by or on behalf of the non‑resident.

The effect of Section 14‑A is to treat the resident agent as a dealer in a fictitious sense whenever the agent is acting on behalf of a non‑resident who is engaged in the buying‑selling business in the State. Accordingly, the agent is taxed under the Act for the non‑resident’s business regardless of whether the turnover of that business meets the minimum threshold laid down in the Act. The primary issue, therefore, is whether the non‑resident can be said to be carrying on the business of selling goods in Andhra Pradesh in the facts of the present case. Counsel for the appellant relied upon the Supreme Court’s decision in Mahadayal Premchandra v. Commercial Tax Officer, Calcutta (1959) S.C.R. 551, which examined a similar provision in the Bengal Finance (Sales Tax) Act, 1941. In that precedent, the Court considered whether an agent could be held liable for the sales of goods that belonged to a non‑resident, and the discussion in that case is invoked to assess the first condition for liability of the agent under the Madras General Sales Tax Act.

The Court observed that the provision relied upon by the appellant is a section that is essentially on the same subject as the one under consideration. In the earlier decision, the Court held that the Kanpur mill, whose agent was the appellant in that case, was not engaged in any business of selling goods within West Bengal; rather, the mill sold goods in Kanpur and dispatched them to West Bengal for consumption. That passage of judgment was cited solely to illustrate that the first condition for imposing liability on an agent under the Madras General Sales Tax Act was not satisfied in that earlier circumstance. In the present matter, however, the High Court made a clear finding that the non‑resident principals were indeed carrying on the business of selling in Andhra Pradesh. The High Court reasoned that when the non‑resident principals obtained railway receipts in their own names, they manifested an intention to retain ownership and control over the goods, thereby causing the sales to be deemed as having been completed in the State of Andhra Pradesh. From that reasoning, the High Court concluded that the non‑resident principals were conducting a selling business in Andhra Pradesh. The High Court further noted that after securing orders, the appellant obtained the railway receipts from the sellers, handed them over to the buyers, and on some occasions collected the purchase price and transmitted it to the sellers. Consequently, the sales that resulted were deemed to have taken place in the State either on behalf of the appellant or on behalf of the non‑resident principals. Whichever interpretation is adopted, the appellant, as an agent, was liable as a dealer under the Act. He either qualified as a dealer in his own right, or he became a dealer by the legal fiction created by section 14‑A, because the non‑resident principals had conducted business in Andhra Pradesh in each case. The Court further noted that the earlier decision, upon which reliance was placed, was decided on its own facts, and a finding in that case could not be applied to the present facts. Sub‑section (2) of section 14‑A was linked to the opening part of the statutory scheme, and it was argued that tax was payable on the turnover attributable to the business of a non‑resident carried on in the taxable territory. In the Court’s view, once it is established that the non‑resident principal carried on the business of selling in Andhra Pradesh and that the appellant was the acknowledged agent through whom this business was conducted, the remaining conclusions follow logically. Accordingly, the Court held that the High Court was correct in upholding the tax levy against the appellant, finding that the appellant fell squarely within the four corners of section 14‑A with respect to the transactions described in the last category. The appeals were therefore dismissed.

In the final order, the Court directed that costs be awarded and that the fee for a single hearing be levied. It further stated that the appeals were dismissed. The direction regarding costs and the hearing fee applied to the parties concerned in the appeal, and the dismissal meant that the relief sought by the appellant was not granted.