Judgment

KANIA, J. :- This is an appeal against a judgment of a Division Bench of the High Court of Kerala under the provisions of the Kerala General Sales Tax Act, 1963 and Tax Reference Case No. 52 of 1971 filed pursuant to special leave granted by this Court. The appellant before us is the M/s. Alwaye Agencies and the respondent is the Dy Commissioner of Agricultural Income-tax and Sales Tax, Ernakulam.

2. The assessee firm was appointed as Distributor by the Travancore Cochin Chemicals Ltd. (referred to hereinafter as the "said company") to effect the sale of Sodium Hydrosulphite manufactured by the said company in the area covered by the Kerala State under an agreement entered into on 11th Feb. 1967. The dispute pertains to the transaction which took place between 1st Sept. 1967 and 20th Dec. 1968 since it is an undisputed fact that the transactions upto the former date are not taxable. It is common ground that the relations between the parties were governed throughout by the said agreement and that the parties adhered to the terms of the said agreement. In view of this it would be desirable to examine that agreement at this stage. As aforesaid, the agreement is dated 11th Feb. 1967. Under the agreement, the assessee firm was appointed as Distributor for the aforesaid product manufactured by the company for the area covered by the Kerala State. Clause 2 of the agreement provides that the distributorship was on an exclusive basis giving the distributor the right of sale of the product within the aforementioned area and that supplies would be made only direct to the distributor. Sub-cl. (a) of Cl. 2 further provides :

"However, when on the advice of the distributor bulk supplies are effected in waggon-load or lorry-load lots the Company may effect supplies direct to the consumer, provided that the distributor arranges the payment as per the clause hereinafter mentioned and also takes the responsibility to bear entirely the resultant effects and risks from effecting such direct despatches."

3. Sub-cl. (b) of the said clause provides that the company reserves the right to effect the sale of Sodium Hydrosulphite to anybody and anywhere in India direct.

4. Under Cl. 4, the price which the distributor would be entitled to charge to the consumer was fixed by the company and it was provided that the distributor will sell the materials to the clients or consumers at the said price plus certain costs incurred by the distributor. Clause 6 provides that the said company would grant the distributor a rebate of 3% on the ex-factory selling price, which the company was entitled to determine as aforesaid. This rebate was liable to be paid to the distributor only at the end of the month when the statement of the account would be settled. Under Cl. 7, the distributor was liable to guarantee the minimum off fake of the said product. Clause 8 of the agreement provides for mode of payment by the assessee (distributor to the said company, and very briefly stated, it provides that the assessee would arrange for effecting payment either in cash or by Demand Draft payable at par, or, alternatively, would open an irrevocable letter of credit in favour of the said company negotiable against R/R or other documents of despatch of goods. It is provided that the letter of credit would cover the value of goods as well as charges of transport for booking the goods to destination station, sales tax and other expenses including costs of insurance, if any, effected at the distributors request. An alternative mode of the payment is provided to the effect that the assessee as distributor must remit 10% of the full value by Demand Draft and retire the documents of despatch of goods sent to the assessee through bank for collection from the bank. Clause 8 further provides if the documents sent by the said company are not retired within the stipulated time, interest would be payable by the distributor on the amount due at the rate of 12% per annum. The clause also make