MAY AND BAKER LTD Vs. STATE OF BOMBAY

JUDGEMENT

(1.) THIS is an appeal against a decision of the Collector of Sales Tax Bombay, made under section 27 of the Bombay Sales Tax Act, 1953, that the supply of the goods by the appellants Messrs. May & Baker Ltd. to Messrs. May & Baker (India) Ltd., hereinafter referred to as the company) under six specified consignment notes constituted sales for the purposes of the said Act. The firm of the company was established in Bombay in 1928. It used to receive goods manufactured in the appellants' factory in Dagenham, England, and to sell them. In 1944 the method of supply was altered to a system on a consignment basis. On 31st March, 1944, the appellants sent a cable to the company in which it was stated, "we propose take over your stocks specialities chemicals as at April first and make all future supplies on consignment basis ........ System we propose operating is as follows. For supplies specialities will issue consignment invoices for customs purposes at arrange consignment value basis on current domestic value less commission plus cases freight marine and war risk insurance ....... when goods sold or leave your branch sales offices you will credit us with consignment value and debit us with your commission separately". In 1948-49 the appellants built their own factory at Worli at Bombay. Since then the company has been receiving the bulk of the supplies from this factory and although some supplies used to come directly from England, we are not concerned with such supplies in this case. The company obtained a registration certificate under the Act of 1946, and the factory at Worli also obtained such a certificate. The company has become responsible for the marketing of the whole production of the Worli factory. There was no formal agreement between the company and the appellants, but the practice is that the company intimates its likely requirements from time to time and goods are consigned to the company under a consignment note in which no value of the goods is stated. Sales are effected by the company at list prices fixed in advance by the manufacturers. Products sold by the company bear lables in which the appellants are shown as the manufacturers and the company as the distributors.

(2.) ON the 1st January, 1953, the appellants wrote a letter marked "strictly confidential" to the Accountant of the company from which the following extracts appear to be relevant : "We have received your letter dated the 25th November, 1952, from which we note that on the 1st July. 1952, the form of the Reserve Bank Statement on the basis of which permission to remit is given, was changed". "To deal with the situation created by the change made by the Reserve Bank we suggest you should arrange a meeting with some senior official of the Reserve Bank and describe to him the difficulties which you and we are facing as a result of the form of the statements now required". "It will first be necessary to explain in detail the method of trading which we use and the reasons why we prefer to use this method. Your explanation should therefore be on the following lines :- "(a) May & Baker Ltd., Dagenham, are sending to May & Baker (India) Ltd., supplies of various goods in a saleable condition. They are also sending to May & Baker Ltd., Worli, supplies of raw materials and intermediates for processing and packaging into other goods for ultimate sale in India. In both cases, the consignment method of trading is used, both for supplies sent from Dagenham and for the transfer of finished goods from May & Baker, Worli, to May & Baker (India) Ltd. "(b) You will then explain that our reason for having two companies operating in India is that we regard the functions of manufacturing and of selling as being quite different in nature, scope and responsibility the former requiring technical, engineering and scientific staff and the other more especially a highly specialised sales and publicity staff. May & Baker (India) Ltd., is a company which has always had selling as its principal object and we do not consider it desirable that its energies should be diverted from this principal purpose to grapple with the very many difficult technical problems associated with the manufacture of drugs and medicines. "Furthermore, we regard it as of the utmost importance that there should be the closest liaison between our various production staff wherever in the world our factories happen to be situated. It appears to us, therefore, not only logical but essential that those highly qualified and experienced experts responsible for production at our main factory at Dagenham should also be directly responsible for supervising and controlling our manufacturing operations elsewhere. "(c) ON the second point, i.e., consignment trading, you should state that we use this method primarily for its great internal convenience but also because we do not wish to take credit in our accounts for sales of goods until, so far as our ground is concerned, these goods have in fact been sold. It will be appreciated that if the firm account method of trading were used, goods simply sent to M.B.I. would appear in the May & Baker Ltd. accounts as 'sales'. In actual fact, no sale would really take place until the goods were effectively sold by May & Baker (India) Ltd., perhaps six months or a year later. It follows that if the firm account method were used we should be paying tax in the United Kingdom on 'profits' before they were in fact realised. "For these reasons, therefore, we greatly prefer to use the consignment method of trading in spite of the fact that it seems complicated and involves us in a lot of work. It must be made perfectly clear to the officials to whom you speak, that these are our sole reasons for choosing to trading as we do. They are amply sufficient reasons and there are no others". It has not been established on behalf of the Government that this letter does not reflect the true state of affairs as existing between the appellants and the company.

(3.) IN this case there is no general commission agent nor is it a fact that both the parties deal in the sale of the same kind of commodities. It is true that, as the Collector of Sales Tax has noticed, there is nothing in the memorandum of association of the company which precludes its acting as distributors for any other manufacturer, but the fact remains that this has not been done so far and that it has been acting as only the selling agent of the appellants. It is also particularly to be observed that in Kalyanji v. Tikaram (A.I.R. 1938 Nag. 254) there was no right in the plaintiff to recall the goods consigned at any time prior to the sale.