JUDGMENT : Shri Pawan Dwivedi, Advocate for the petitioner. Shri Raghvendra Dixit, Govt. Advocate for the respondents/State. Heard. 2. The present petition requires interpretation of Explanation (c) of section 2(u) of Madhya Pradesh VAT Act, 2002 (hereinafter shall be referred to as the 'VAT Act'). 3. The petitioner is a Private Limited Company incorporated under the provisions of Indian Companies Act. It is also registered under the provisions of VAT Act. The company is in the business of purchase and sale of allopathic medicines particularly life saving drugs within the State of M.P. and out side the State. 4. Petitioner entered into an agreement with M/s Rahul Pharma and appointed the aforesaid Firm as Carry and Forward Agent. In accordance with the terms of the agreement, the agent has to supply the goods to the authorized distributors or dealers appointed by the company. The petitioner was assessed for tax under the provisions of VAT Act for the assessment year 2006-07. In view of Explanation (c) of section 2(u) of the VAT Act, the authorities have held that when the petitioner supplied the goods to its agent M/s Rahul Pharma, this transaction is first sale and tax is chargeable on this sale under VAT Act and thereafter when the selling agent further sales or transfers the goods to the buyers, then also it comes under the definition of 'sale' and it is also taxable under the provisions of VAT Act. The petitioner pleaded that it amounts double taxation. 5. The petitioner pleaded that it amounts double taxation. 5. Definition of section 2(u) of the VAT Act defines 'sale', which is as under : - "(u) "Sale" with all its grammatical variations and cognate expressions means any transfer of property in goods for cash or deferred payment or for other valuable consideration and includes, - (i) a transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (ii) a transfer of property in goods whether as goods or in some other form, involved in the execution of works contract; (iii) a delivery of goods on hire purchase or any system of payment by instalments; (iv) a supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (v) a supply, by way of or as part of any service or in any other manner whatsoever, of goods being food or any other article for human consumption or any drink (whether or not intoxicating) where such supply or service is for cash, deferred payment or other valuable consideration; (vi) a transfer of the right to use any goods including leasing thereof for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and purchase of those goods by the person to whom such transfer, delivery or supply is made, but does not include a mortgage, hypothecation, charge or pledge;" There is Explanation of this section and clause (c) of the aforesaid Explanation is important, which is as under :- "(c) Notwithstanding anything to the contrary" contained in this Act or any other law for the time being in force, two independent sales or purchases shall, for the purpose of this Act, be deemed to have taken place,- (i) when the goods are transferred from a principal to his selling agent and from the selling agent to the purchaser; or (ii) when the goods are transferred from the seller to a buying agent and from the buying agent to his principal." 6. As per the definition of 'sale' given under section 2(u) of the VAT Act, it means any transfer of property in goods for cash or deferred payment or for other valuable consideration. In accordance with the aforesaid provisions, for the purpose of sell, there must be transfer of property under any circumstances. However, Explanation (c) of section 2 (u) of VAT Act prescribes that there would be two independent sales or purchases when the goods are transferred from a principal to his selling agent and from the selling agent to the purchaser. In the present case interpretation of this explanation is necessary. 7. Hon'ble Supreme Court in the case of Sri Tirumala Venkateswara Timber and Bamboo Firm vs. Commercial Tax Officer, Rajahmundry, 1968 STC 312 has interpreted the meaning of section 2(1)(n) Explanation III of Andhra Pradesh General Sales Tax Act, 1957 and held as under :- 'Sale' with all its grammatical variations and cognate expressions means every transfer of the property in goods by one person to another in the course of trade or business, for cash, or for deferred payment, or for any other valuable consideration, (and includes any transfer of materials for money consideration in the execution of a works contracts provided that the contract for the transfer of such materials can be separated from the contract for the services and the work done, although the two contracts are embodied in a single document) or in the supply or distribution of goods by a society (including a co-operative society), club, firm or association to its members, but does not include a mortgage, hypothecation or pledge of, or a charge on goods." NOTE :- By Amendment Act 26 of 1961, the bracketed words were substituted for the words "and includes a transfer of property in goods involved in the execution of a works contract." In our opinion the real object of the Explanation is to prevent the misuse by the assessee of the relationship of principal and agent for the purpose of evading tax. The first situation contemplated by the Legislature is that covered by clause (2)(i) of Explanation III where the agent has sold the goods at one rate and passed on the sale proceeds to its principal at another rate. The second situation is where the agent has purchased the goods at one rate and has passed them on to the principal at another rate. The second situation is where the agent has purchased the goods at one rate and has passed them on to the principal at another rate. The third situation is where the agent has not accounted to his principal for the entire collections or deductions made by him in the sales or purchases effected by him on behalf of his principal, and the fourth is where it appears that the agent has acted for a fictitious or nonexistent principal. It was contended on behalf of the appellant that the State Legislature was not competent to convert by a legal fiction a mere entrustment of goods for sale into a sale and to impose a tax thereon. In our opinion, there is no warrant for this argument. The real effect of the third Explanation is to impose the tax only when there was a transfer of title to the goods and not where there is a mere contract of agency. The Explanation says in effect that where there is in reality a transfer of property by the principal to the agent and by the agent in his turn to the buyer, there are two transactions of sale. In our opinion, the phrase "when the goods are transferred" in clauses (1) and (2) of Explanation III on a proper construction means "when title to the goods is transferred" and so construed it is impossible to say that the Explanation enlarges the scope of the main section. It was pointed out by this Court in The State of Madras vs. Cannon Dunkerley and Co. (Madras) Ltd., that the expression "sale of goods" in Entry 48 in List II of Schedule VII of the Government of India Act, 1935, cannot be construed in its popular sense but must be interpreted in its legal sense and should be given the same meaning which it has in the Sale of Goods Act, 1930. It is a nomen juris, its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to that agreement. In other words, it is necessary for constituting a sale that there should be an agreement between the parties for the purpose of transferring title in the goods, that the agreement must be supported by money consideration and that as a result of the transaction the title to the property must actually pass in the goods. In other words, it is necessary for constituting a sale that there should be an agreement between the parties for the purpose of transferring title in the goods, that the agreement must be supported by money consideration and that as a result of the transaction the title to the property must actually pass in the goods. As we have already pointed out, the third Explanation to section 2(1)(n) of the Act must be interpreted to mean that where there is in reality a transfer of property in the goods by the principal to the agent and by the agent in his turn to the buyer, there are two transactions of sale. It is therefore impossible to accept the contention put forward on behalf of he appellant that the Explanation has converted what, in fact, is not a sale into a sale for the. purpose of assessment to sales tax. It was contended on behalf of the appellant that in any event Items Nos. 2 to 11 of the notice related to goods which the appellant had sent for sale to the commission agents and as the latter had already paid the sales tax the appellant was not liable to be assessed to tax again on the same transaction as there was only one sale. As a matter of law there is a distinction between a contract of sale and a contract of agency by which the agent is authorised to sell or buy on behalf of the principal and make over either the sale proceeds or the goods to the principal. The essence of a contract of sale is the transfer of title to the goods for a price paid or promised to be paid. The transferee in such a case is liable to the transferor as a debtor for the price to be paid and not as agent for the proceeds of the sale. The essence of agency to sell is the delivery of the goods to a person who is to sell them, not as his own property but as the property of the principal who continues to be the owner of the goods and will therefore be liable to account for the sale proceeds. The essence of agency to sell is the delivery of the goods to a person who is to sell them, not as his own property but as the property of the principal who continues to be the owner of the goods and will therefore be liable to account for the sale proceeds. The true relationship of the parties in each case has to be gathered from the nature of the contracts, its terms and conditions, and the terminology used by the parties is not decisive of the legal relationship." 6. The aforesaid judgment of the Hon'ble Supreme court has covered the controversy. The same principle has specifically been followed in the case of State of Rajasthan and another vs. Rajasthan Chemist Association, reported in (2006) 9 STJ 273 (SC) and 20th Century Finance Corpn. Ltd. and another vs. State of Maharashtra, reported in 2000 STC 182 . 9. In the present case, M/s Rahul Pharma is an agent of the petitioner company, which is clear from the agreement (Annexure P/1). It only supplies the goods to the authorized dealer of the company or supply the goods to the buyer and for the aforesaid purpose it takes commission of 3%. It means that the agent M/s Rahul Pharma used to deliver the goods not as its own property but as the property of the principal, who continues to be the owner of the goods and therefore liable to account for the sale proceeds. It is not a "sale" as interpreted by the Hon'ble Supreme Court, hence, the petitioner is not liable to pay tax. When the agent delivers the goods to distributor or buyer on behalf of the petitioner, the petitioner is liable to pay the tax. Explanation (c) of section 2 (u) of the VAT Act has to be interpreted in this fashion. It is in consonance with the judgment of the Hon'ble Supreme Court passed in the case of Sri Tirumala Venkateswara Timber and Bamboo Firm (supra), which has been followed subsequently. 10. Consequently, petition of the petitioner is disposed of with the directions that the delivery of the agent of the petitioner to the buyer or to the authorized distributor shall not be taxed under the provisions of VAT Act by treating it as an independent sale. The taxation authorities shall calculate the tax liability of the petitioner accordingly. No order as to costs. Order accordingly.