Madras High Court
State Of Tamil Nadu vs Subramania Chettiar on 22 January, 1997
JUDGMENT Abdul Hadi, J.
1. This revision under section 38(1) of the Tamil Nadu General Sales Tax Act, 1959 in relation to inter-State sales coming under the Central Sales Tax Act, 1956 (hereinafter referred to as "the Act") is by the State of Tamil Nadu.
2. The respondent-assessee is a dealer in groundnut kernel, rice and gunnies at Tiruchy. During the check of accounts, the assessing authority found that the assessee had effected inter-State sales of groundnut kernel and rice during the year 1978-79 to the extent of Rs. 18,10,690 and Rs. 21,27,862 respectively, in all, amounting to Rs. 39,38,552. Though the sales of rice and groundnut kernel were not taxable, the assessing authority estimated the value of gunny bags used for packing purposes in respect of the said sales and assessed the said estimated value to tax under the Act.
3. In all, 23,918 gunny bags were found to have been made use of in this way. Of these 7,060 bags were with reference to groundnut kernel and 16,858 gunny bags were with reference to rice. Of the abovesaid 7,060 bags, 5,725 bags were taxed at 4 per cent since the relevant sales of kernel were covered by valid C form declarations and the rest of the gunny bags, viz., 1,335 bags in relation to groundnut kernel together with the abovesaid entire 16,858 gunny bags in relation to rice, were taxed at 10 per cent since there was no C form declarations therefor.
4. The value of the abovesaid 23,918 gunnies was estimated at Rs. 71,754 at the rate of Rs. 3 per gunny. Aggrieved by the assessment on the abovesaid estimated value of gunnies, the assessee preferred appeal to the Appellate Assistant Commissioner. But, since the Appellate Assistant Commissioner also agreed with the finding of the assessing authority and dismissed the appeal, the assessee preferred second appeal to the Appellate Tribunal. The Tribunal held that the conclusion of the Appellate Assistant Commissioner and the assessing authority that the abovesaid gunny bags used as containers of groundnut kernel and rice were chargeable to sales tax, was unsustainable and allowed the appeal. Aggrieved the State has preferred this revision.
5. The reasoning of the Tribunal in allowing the appeal is that the Revenue has not proved that there was any express or implied agreement between the parties to sell the abovesaid packing materials, viz., gunny bags, while the burden of proving the same was on the Revenue. No doubt, admittedly there was no express agreement between the parties to sell the said gunny bags. However, in relation to the question whether such an agreement could be implied, the Tribunal observed "we do not have any evidence in the assessment record to show that there was an implied contract for sale of gunnies". Learned counsel for the Revenue submits that the Tribunal erred in law in holding that there was no proof of implied agreement for sale of abovesaid gunnies and it also likewise erred in holding that there was no evidence to show that there was such an implied agreement. He also relies on several authorities.
6. On the other hand, learned counsel for the assessee reiterates the reasoning of the Tribunal and also relied on several other authorities. She also emphasized that the abovesaid sales of groundnut kernel or rice, as the case may be, are integrated transactions, wherein the abovesaid packing materials, viz., gunny bags used, have necessarily to be used in transporting the said groundnut kernel or rice and that the abovesaid sale price of Rs. 18,10,690 in the case of groundnut kernel and Rs. 21,27,862 in the case of rice would squarely come under the definition of the term "sale price" under section 2(h) of the Central Sales Tax Act, 1956, and that since the said definition would include "any sum charged for anything done by the dealer in respect of the goods at the time of or before the delivery thereof...", there cannot be any separate tax for the abovesaid estimated value of the gunny bags in view of the abovesaid exemption granted in relation to the said groundnut kernel and rice. She also points out that the abovesaid value of the gunny bags was only an estimate. She also submits that there is no case for interference under section 38 of the Tamil Nadu General Sales Tax Act, 1959.
7. We have considered the rival submissions. In our opinion, for the following reasons, the Tribunal has erred in law in coming to the conclusion it reached, viz., that there is not even an implied agreement to sell the abovesaid gunny bags in the abovesaid transactions and that there is no evidence to show that there was such an implied agreement. No doubt, even at the outset, we must state that onus lies on the Revenue to establish that there was such an implied agreement [vide also Lalchandra Shyam Sunder v. Commissioner of Sales Tax [1988] 68 STC 225 (MP)]. But, in out view that burden has been discharged by the Revenue in this case, particularly in the light of the following significant observation of the Supreme Court in Raj Sheel v. State of Andhra Pradesh [1989] 74 STC 379 and other decided cases and other factual factors. No doubt, that is a case, where section 6-C of the Andhra Pradesh General Sales Tax Act, 1957 providing a legal fiction that the packing material (container) shall be deemed to have been sold with the goods (contents). The challenge there was against the assessment based on the abovesaid legal fiction. In that context, The Supreme Court made the following significant observation :
"Turning to section 6-C of the Act, it seems to envisage a case where it is the goods which are sold and there is no actual sale of the packing material. The section provides by legal fiction that the packing material shall be deemed to have been sold along with the goods. In other words, although there is no sale of the packing material, it will be deemed that there is such a sale. In that event, the section declares, the tax will be leviable on such deemed sale of the packing material at the rate of tax applicable to the sale of the goods themselves. It is difficult to comprehend the need for such a provision. It can at best be regarded as a provision by way of clarification of an existing legal situation. If the transaction is one of sale of the goods only, clearly all that can be taxed in fact is the sale of the goods, and the rate to be applied must be the rate as in the case of such goods. It may be that the price of the goods is determined upon a consideration of several components, including the vale of the packing material, but nonetheless the price is the price of the goods. It is not open to anyone to say that the value of the different components which have entered into a determination of the price of the goods should be analysed and separated, in order that different rates of tax should be applied according to the character of the competent (for example, packing material). What section 6-C intends to lay down is that even upon such analysis the rate of tax to be applied to the component will be the rate applied to the goods themselves. And that is for the simple reason that it is the price of the goods alone which constitutes the transaction between the dealer and the purchaser. No matter what may be the component which enters into such price, the parties understand between them that the purchaser is paying the price of the goods. Section 6-C merely clarifies and explains that the components which have entered into determining the price of the goods cannot be treated separately from the goods themselves........"
8. In the present case where the assessee is dealer in gunny bags also as indicated in the orders of the authorities below, there are admittedly the abovesaid sales of groundnut kernel and rice to the tune of Rs. 39,38,552 using the abovesaid 23,918 gunny bags for packing those groundnut kernel and rice, the value of the said gunny bags being as much as Rs. 71,754 at the rate of Rs. 3 per bag, the value of the gunny bags roughly works out to about 1/50th part of the entire sale price of Rs. 39,38,552. When such is the case in the light of the abovesaid Supreme Court observations, there is no difficulty in holding that when the abovesaid sales of groundnut kernel and rice were effected, there was at least an implied agreement to sell the abovesaid gunny bags also and the Tribunal despite the abovesaid features, erred in observing that there was no evidence to show that there was no such implied agreement between the parties to sell the gunny bags also. No doubt, learned counsel for the assessee sought to contend that the rate per gunny bag at Rs. 3 was only an estimate. But the said learned counsel has not shown any serious challenge having been made against the abovesaid estimate made by the assessing authorities regarding the price of the gunny bags used.
8(a). Further, in actuality in our view, it must be held that there were actually composite transactions of sale, covering not only groundnut kernel, but also of the gunny bags relating thereto, in one case, and rice and the gunny bags relating thereto, in the other case. Even in State of Tamil Nadu v. V. V. Vannia-perumal & Co. [1990] 76 STC 203, a Full Bench of this Court held in the context of sale of oil, that the bargain of sale was of "tin of oil" and the goods sold were composite goods. It was also held in the said Full Bench decision that even the fact that they were charged separately in the bills was immaterial. Therefore, in the said Full Bench decision even the value of the container tin was held to be chargeable to tax. In Natarajan and Sons v. State of Tamil Nadu [1977] 39 STC 443 also another Division Bench of this Court has likewise held that when oil is sold in a sealed tins and even if oil contents is separately priced and the tin container is separately priced, the total price is exigible to tax. Likewise in A. R. Manickam Chettiar & Sons v. State of Tamil Nadu [1992] 87 STC 134 also, this Court held (in a case of sale of rice and paddy packed in gunny bags) after referring to the abovesaid Full Bench decision [State of Tamil Nadu v. Vanniaperumal & Co. [1990] 76 STC 203 (Mad.)] and two other decisions of Supreme Court, that what was sold was not merely rice and paddy as such, but rice and paddy along with the packing material, namely, gunny bags used and that the value relating to gunny bags was liable to be included in the taxable turnover and subjected to tax.
8(b). Similar view was expressed in another Division Bench judgment of this Court [to which one of us (Abdul Hadi, J.) was a party], viz., State of Tamil Nadu v. S. Murugaiyan [1996] 101 STC 363. That was a case of sale of salt, using gunny bags therefore as packing material. The conclusion reached therein is as follows :
"We are unable to approve the findings of the Tribunal in setting asaid the assessment against the assessees in these cases (relating to gunny bags). As noticed earlier there is no controversy over the fact that the salt was sold packed in gunnies and the price charged or received therefor was for the commodity packed and sold and no charge or price of gunnies was exhibited or shown separately in the bills."
The facts in State of Tamil Nadu v. Murugaiyan [1996] 101 STC 363 are similar to the present facts. Further, there too, inter-State sale of salt as such was exempted from tax. In that context, it was also held that the said exemption granted should not be extended to the abovesaid packing materials.
8(c). In Ramco Cement Distribution Co. Pvt. Ltd. v. State of Tamil Nadu [1993] 88 STC 151, the Supreme Court has also held, in a case of sale of cement along with the relevant packing material, that packing charge therefor form part of "sale price" as defined in section 2(h) of the Act, because the expression "any sum charged for anything done by the dealer in respect of the goods" used therein squarely cover such charges as packing was an integral element of transaction of sale and packing charges were integral part of the sale price.
9. In this connection, we must point out that the abovesaid argument of learned counsel for the assessee in the context of the abovesaid definitions is deviod of force and not acceptable, since "sale price" as per the said definition as applicable to the facts similar to the present case, is sale price for a composite transaction, wherein there are both sales of contents and the container. The Supreme Court also held likewise in another earlier decision in Commissioner of Sales Tax, U.P. v. Rai Bharat Das & Bros. which was a case of sale of sand packed in sound gunny bags. [Vide also Jamana Flour & Oil Mill (P.) Ltd. v. State of Bihar , where also, the Supreme Court held in a case of sale of wheat products in gunny bags that there was an implied contract for sale of gunny bags and the turnover of gunny bags was taxable.] Further, in Dalmia Cement (Bharat) Ltd. v. State of Tamil Nadu [1991] 83 STC 442, a Division Bench of this Court has also followed [1988] 71 STC 277 (Commissioner of Sales Tax v. Rai Bharat Das & Bros.) and held in a case of sale of magnesite in gunny bags that the packing in the abovesaid gunny bags was necessary concomitant of the sale agreement and the packing charges were amounts payable to the dealer as consideration for sale of the goods and fell squarely within the definition of "sale price" in section 2(h) of the Act. [Vide also State of Tamil Nadu v. Balu Chettiar [1996] 100 STC 120 (Mad.) (DB) to the same effect].
10. The following decisions cited by the learned counsel for the assessee are distinguishable. A. Prakasam Pillai and Sons v. State of Tamil Nadu [1993] 91 STC 95 (Mad.) was a case of sale of jaggery in the same gunny bags in which the seller purchased from agriculturists and the value of the said bags were insignificant. In view of these features (which are distinguishable from the present facts) this Court held that the value of the gunny bags therein were not taxable. Then, Mookken Devassy Ouseph and Sons v. State of Kerala [1975] 36 STC 501 (Ker) was a case of sale of retail dealers at the rates and profit fixed by the Government, foodgrains in gunny bags after purchasing from the Food Corporation of India. There too, the assessee got the foodgrains in gunny bags and supplied them to the retail dealers in the same condition in gunny bags. No doubt, in the context, it was held that the assessee therein was not liable to pay sales tax on the estimated value of gunny bags. However it must be stated that the said decision also turned on its own facts.
11. The net result is, the revision petition is allowed, the order of the Tribunal is set aside and the order of the assessing authority and the Appellate Assistant Commissioner are restored. However, in the circumstances of the case, there will be no order as to costs.
12. Petition allowed.