The court held that the assessing officer should not have relied solely on the report of the FCI Inspector to conclude that the assessee had purchased paddy and sold rice without authorization from the FCI.

JUDGMENT

MISRA, J. - S.J.C. No. 125 of 1976 is a reference made by the Additional Sales Tax Tribunal under section 24(1) of the Orissa Sales Tax Act (hereinafter referred to as the "Act") referring the following two questions for opinion of the Court :

"(1) Whether, on the facts and in the circumstances of the case, the Member, Additional Sales Tax Tribunal, was justified in taking into consideration the report of the Inspector of the Food Corporation of India to come to the conclusion that the applicant dealt with the amounts found short by the said Inspector and whether the Tribunal was justified in assessing tax on those shortages noticed ?

(2) Whether, on the facts and in the circumstances of the case, the Member, Additional Sales Tax Tribunal, is correct in law in bringing the tax liability of the assessee for the purchase of paddy and sale of rice which were admittedly transacted on account of the principal, F.C.I., as their agent and the agent's failure to account to the principal ?"

S.J.C. No. 174 of 1976 is a reference made by the Tribunal pursuant to an order of this Court on the assessee's application under section 24(2)(b) of the Act and the following question has been referred :

"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in applying the principles decided in [1972] STC 155 (sic), without considering and construing the agreement to hold that supply of gunny bags by the dealer to the Food Corporation of India is a sale ?"

As the assessee is common and the matter relates to the same period of assessment, i.e., 1972-73, both the references were heard together and are being disposed of by a common order.

2. The assessee is a registered dealer. It dealt in several articles and was also acting as the purchase-cum-milling agent of the Food Corporation of India during 1972-73. The assessing officer on scrutiny of the accounts found that the assessee had supplied 228 quintals of rice to the Corporation after packing them in gunny bags. The assessee had been paid at the rate of Rs. 3.25 per quintal on account of gunny bags. He, therefore, held that the assessee was liable to sales tax on a turnover of Rs. 741 on account of sale of gunnies. The assessing officer further took note of the report of the Inspector of the Corporation on physical verification that there was a shortfall in the stock of superfine rice as also paddy. The assessing officer thereupon confronted the assessee's agent and did not accept the explanation offered by him. He recorded the following finding :

"......It is true that the dealer was acting as a sub-agent of the Food Corporation of India for the purpose of purchase and milling of paddy and storage of rice and paddy. But the agent is not certainly authorised to sell rice and paddy beyond the terms of agreement entered into by them. The Food Corporation of India who is the principal in relation to the dealer for the purpose of purchasing and milling of paddy has not certainly authorised the dealer to appropriate the stock of paddy and rice in the manner other than stipulated in the terms of agreement. Therefore, the Food Corporation of India moved the District Magistrate, Balasore, to take action against the dealer for having abused the terms of appointment of agency by him. Hence for the unauthorised action committed by the agent beyond the terms of agreement the principal cannot certainly be made answerable for huge discrepancy noticed in the stock kept at the custody of the dealer. The dealer even though admits the fact of such huge shortage he does not disclose any satisfactory channel as to how the stock found short on physical verification was disposed of by him. Thus in the absence of any clear manner of disposal, I arrive at the inevitable conclusion that the shortage occurred due to the fact that the dealer has sold away the stock of rice and paddy out of account ......."

He, therefore, proceeded to estimate the price of the shortfall by adopt