In the given case, Bhopal Sugar Industries LTD. was the appellant whereas the Sales Tax Officer, Bhopal was the respondent. The suit was basically filed to collect sales tax from the appellate considering that the usage of the product by the appellate itself was a sale as the respondent appellate was considered to be an agent of Caltex company and not a buyer.

The appellant primarily had a business manufacturing sugar and incidentally set up a new business selling high-speed diesel, oil petrol and lubricants. The petrol pump was set up in the factory premises itself. For the supply of petroleum products, appellant entered a contract (with certain conditions) with Caltex (India) LTD. The relevant years that were to be assessed were April 1, 1957- March 31, 1958; April 1, 1958 to March 31, 1959; April 1, 1959 to March 31, 1960; April 1 1960 to March 31 1961; During the course, appellant sold petrol to many vehicles such as cars, trucks and consumed some part of the petrol for its own purpose. 


  1. Whether the product consumed by the appellant itself should be treated as sell and is eligible for sales tax.
  2. Is the mere formal description of a person as an agent or buyer is conclusive?
  3. Was the appellant agent or the buyer of Caltex (India) Limited?

Contention of parties


The appellant, referring to the judgement of Sri Tirumala Venkatswara Timber and Bamboo Firm v. Commrl. T. O., Rajahmondry, said that the “court must look into the substance of the agreement rather than the form of it. The mere formal description of a person as an agent or buyer is not conclusive.”

“Now the restrictions imposed by the seller such as fixation of price, submission of accounts, selling in a particular area or territory and so on, would not convert a contract of sale into one of agency, because in spite of these restrictions the transaction would still be a sale and subject to all the incidents of sale”

“The appellant sold the goods as his own property. He was himself responsible for all the losses, incidental or otherwise. The appellant after taking delivery of the goods, was the owner of the goods and if the goods and if it consumed the same for its own purposes it was not doing so an agent but as a owner which it was fully entitled to do. In this view of the matter, the quantities of a petrol consumed by the appellant would not constitute a sale so as to be eligible to sales tax.” 

The appellant then relied on the Bombay High court in Daruwala Bros. Ltd. v C. I. T. judgement, “where it had almost same facts, held that even though there were restrictions on the assessed, the agreement being one of the distributions was to be treated as a contract of sale and not an agreement of agency. It would thus appear that even if a party is described as agent in the agreement, he may not be an agent but a buyer though described as an agent. In fact, we feel that there may be agreements which may contain some elements of agency but may be contracts of sale in other respects.”


The respondent relied on the decision in Foley v Classique Coaches Ltd. “This authority does not appear to be any assistance to the respondent because in that case the court came to a finding of fact that there was no concluded contract at all and the agreement was merely an executory one and, therefore, the question of determining the relationship between the parties did not naturally arise.”

The respondent strongly relied on Willcox and Gibbs Sewing Machine Company v Daniel S. Ewing in which the court observed that, “and it is agreed that this appointment or agency is not saleable or transferable by a second party without obtaining the written consent of the first party, but such consent is to be given providing the purchaser or another person is acceptable to said first party.”


“Finally, the reliance was placed on clause 18 of the agreement appearing at pt. 126 of the paper book which requires the dealer to furnish security for the due observance and performance of the stipulations contained therein. Such stipulation also does not by itself show that the agreement was one of agency

“The present agreement undoubtedly contains some elements of agency also, but the main question which has to be determined in the case is whether or not at the point of time when the appellant was consuming the hispeedol or petrol for its own purpose it was acting as an owner of the goods or as an agent of the seller company. From the facts and the circumstances discussed above, we have shown that the appellant after taking delivery of the goods, was the owner of the goods and if it consumed the same for its own purposes it was not doing so as an agent but as an owner which it was fully entitled to do. In this view of the matter, the quantities of the petrol consumed by an appellant for its own purposes would not constitute a sale so as to be eligible for sales tax. We have carefully perused the order of the commissioner and find that the commissioner has taken an erroneous view of the law and has drawn legally wrong inferences from the various stipulations contained in the agreement. The commissioner has also not given effect to well-established legal principles in interpreting the agreement.”

“For the reason given above, we are unable to maintain the order of the commissioner which suffers from manifest errors of law apparent on the face of the record. We, therefore, allow these appeals, set aside the order of the commissioner dated May 5, 1970, and hold that the use of hispeedol and petrol by the appellant for its own purposes is not eligible to sales tax and the proceedings for imposing sales tax on the appellant are hereby quashed. The appellant will be entitled to its cost throughout.”


The facts of the given case are very clearly stated which gives us a clear idea of the image of the company and its establishment, the issue that was disputed was that of the sales tax which was to be collected from the appellant by the respondent assuming that “consumption of the goods by the respondent was the sales done to itself as it was the agent of the Caltex company(petrol supplier) and hence appellant is liable to pay the sales tax of the transaction of the goods that appellant has done with itself”. 

If we analyse the above statement the contention that was put forward by respondent is very much wrong as the agent, defined by law has different liabilities, rights and duties than that the appellant had. 

Let us see agent as per the law: 

 Section 182 of Indian Contract Act: An “agent” is a person employed to do any act for another, or to represent another in dealings with third person. The person for whom such act is done, or who is so represented is called the “principle”.

Now, interpreting the same and seeing the above facts it can be seen that the appellant was not working for the respondent rather he was working for himself and the goods which were delivered to his was his liability and had a title of ownership of those goods.  Also, considering the judgement delivered in Snow White Industrial Corporation, Madras v Collector of central Excise, Madras, it been recorded that “The determination of whether the relationship between the parties is that of agency or of conceptually something else (though apparently similar) will depend upon the facts of each case.”, therefore, the status of agent or buyer is determined on the basis of the facts of the case.

If we see the duties and the liabilities of the principle toward the agent as per the law, some of which are 

  1. To indemnify agent for lawful acts (Section 222- 224) 
  2. To be liable on the contracts entered by an agent (Section 226-228)
  3. Bound by unauthorised acts of agent if third person is induced (Section 237)

If we assume respondent as a principle, respondent was not liable rather was not bound to these restrictions as we can see that the appellant confessed to the court that “As we had purchased petrol and hispeedol on outright purchase and sale basis from M/s Caltex LTD., we borne the entire losses arising out of entire expenses or handling at our receiving point. We also borne the losses due to leakages, driage and/or evaporation during the course of storage at our pumps. M/s Caltex did not reimburse us for any losses”, from the above confessed statement we can definitely say that the appellant was not indemnified.

As appellant entered into contract with many truck’s driver and car driver on daily basis by selling petrol to them, the same contract did not bound the Caltex company therefore the above stated second liability was also not beared by the respondent.

If, by any incident appellant engaged into an unauthorised act with the third party, Caltex India was not bound by the same as it was not bound by the contract that was made by the appellant on the daily basis i.e. with its customers.

By analysing the above statement, it can be conferred that the Caltex LTD. was not bound to fulfil the duties that an agent has to nor it had any liabilities stated above towards the appellant, therefore we can say that the relationship between Caltex and appellant was not that of “agent” and “principle” rather it was of “buyer” and “seller”.

By keeping the above facts, contentions from the both side that is of appellant and the respondent and analysis it can be said that the appellant i.e. The Bhopal Sugar Industries LTD. was not an agent of Caltex LTD. and was the owner of the goods which were purchased from the Caltex LTD. 

Defects in Law 

Constitutional challenge: The case also involved a constitutional challenge to the Madhya Pradesh Sales of Motor Spirit and Taxation Act, 1957. The defects in law may pertain to the interpretation and application of constitutional provisions in the context of sales tax laws and assessments.

Inconsistencies in Precedents: The defects in law may also relate to inconsistencies in the application of legal precedents and principles. The case involved references to previous decisions and legal authorities to support the arguments. The defects may arise from the inconsistencies in the application of precedents and the interpretation of legal principles.

Interpretation of Contract: The case raised questions about the interpretation of the agreement between the appellant and Caltex (India) Ltd. The Court had to determine whether the transactions between the parties constituted a contract of sale or a contract of agency. The defects in law may arise from the interpretation of the terms of the agreement and the application of legal principles to determine the nature of the transactions


The Bhopal Sugar Industries Ltd. v. Sales Tax Officer case centred on a disagreement regarding the assessment of sales tax on the consumption of petroleum products by the appellant, a sugar manufacturer and petroleum product dealer. The Sales Tax authorities deemed the petrol used by the appellant for its own purposes as subject to tax. However, the Supreme Court ruled that the petrol consumed by the appellant was not liable for sales tax since the appellant, upon delivery, became the owner of the goods and consumed them in that capacity, not as an agent.

The court’s decision hinged on the interpretation of the agreement between the appellant and Caltex (India) Ltd., the legal characterization of the transactions, and the application of legal precedents to ascertain the nature of these transactions. The judgment underscored the importance of considering the substance of the agreement rather than merely its form, emphasizing that terms such as “agent” or “agency” were insufficient in determining the actual roles assumed by the parties.

The legal issues in this case may revolve around the interpretation of the agreement, the legal classification of transactions, inconsistencies in legal precedents, and the constitutional challenge to the relevant sales tax legislation. A case commentary would delve into a comprehensive analysis of these aspects and their implications for sales tax laws and assessments in India, emphasizing the need for a nuanced approach that prioritizes substance over form in legal interpretations.



  1. The Indian Contract Act, 1872
  2. The Indian Contract Act by Sir Dinshaw Fardaunji Mulla.



Mansi Fulzele

National Law University