Madras High Court
State Of Tamil Nadu vs E.I.D. Parry (India) Limited on 24 October, 1997
ORDER Janarthanam, J.
1. Desirable it is, to pen down a common order in all these actions, inasmuch as the issues falling for consideration are one and the same in respect of the same assessee-dealers-Tvl. E.I.D. Parry (India) Ltd., Madras-1, concerning inclusion or otherwise of the packing materials - gunnies utilised for packing and sale of sugar, a controlled commodity and polythene jerrycans utilised as containers for sale of chemicals, in the turnover of the assessee-dealers relatable to the assessment years 1973-74 to 1976-77, besides the turnover under section 6(2B) of the Central Sales Tax Act, 1956 (Act No. 74 of 1956 - for short "the CSTA")
2. Pre-assessment notices, relatable to all the assessment years as aforesaid had been issued by the Commercial Tax Officer, Central Assessment Circle IV, Madras 1, treating the packing materials - gunny bags and polythene jerrycans - as pre-sale expenses, includible in the turnover of the assessee-dealers.
3. The objections, of course, in fact, had been filed by the assessee-dealers stating that there was an agreement only in respect of the sale of polythene jerrycans to their customers and not for the sale of gunny bags. They would also take a stand that sugar, which was packed and sold in gunny bags was exempt from the levy of sales tax. There is no question of any levy of sales tax on the gunnies utilised for packing and sale of sugar. To put it otherwise, the gunnies so utilised are also exempt from the levy of sales tax. Yet another contention that they would take is that the packing materials - gunny bags did not form part of the bargain at all and they were used by the assessee-dealers only as a convenient and cheap mode of transport. Though the assessee-dealers had taken up such a stand as respects the gunny bags, yet, they had not at all whispered or murmured, in the sense of taking any stand as relatable to the use of polythene jerrycans, in the sale of chemicals to customers.
4. Overruling the objections, the Commercial Tax Officer, Assessment Circle IV, Madras, determined the turnover relatable to gunnies and polythene jerrycans for the various assessment years, as below :
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S. No. Particulars Assessment Year Turnover Rate at
------------------------------------------------------------------------
Rs.
I Gunnies 1973-74 4,02,421.50 10%
1974-75 16,23,150.00 10%
1975-76 2,48,940.00 10%
1976-77 35,385.00 10%
II Polythene 1973-74 3,07,861.29 3%
jerrycans (jars)
1974-75 9,12,498.46 3%
40,726.48 10%
1975-76 4,64,863.36 4%
1,89,990.28 3%
52,996.28 10%
1976-77 5,80,850.85 8%
35,835.00 10%
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5. The same assessing officers disallowed the claim of exemption for non-filing of "E1" forms under section 6(2B) of CSTA relatable to the assessment year 1976-77 alone, amounting to Rs. 17,03,849.69.
6. The aggrieved assessee-dealers filed appeals CST Nos. 116 and 115 of 1980 and 37 and 65 of 1981 respectively for the assessment years 1973-74 to 1976-77 before the Appellate Assistant Commissioner (CT), Madras.
7. The said Appellate Assistant Commissioner disposed of CST Nos. 116 and 115 of 1980 and 37 of 1981 by a common order dated March 8, 1982. In the said common order, he deleted the turnover relatable to gunnies, taxable at 10 per cent from the assessment for the three years, namely, 1973-74, 1974-75 and 1975-76. He, however, confirmed the inclusion of turnover on polythene jerrycans, taxable at 3 per cent and 10 per cent as stated above, for the said assessment years, as had been done by the assessing officer. So doing, he partly allowed the three appeals, by deleting the turnover relatable to the gunnies and dismissing those appeals in other respects.
8. The said Appellate Assistant Commissioner disposed of the appeal in CST No. 65 of 1981 by a separate order dated October 7, 1982. In the process of disposal of the appeal, he confirmed the order of the assessing officer, relatable to the inclusion of sale of polythene jerrycans in the turnover of the assessee-dealers for the assessment year 1976-77. He also confirmed the orders of the assessing officer as relatable to the disallowance of the claim for non-production of "E1" forms for the said assessment year. He, however, granted the relief, as respects the sale of gunny bags to the tune of Rs. 14,052 and assessed the sales turnover thereto only to the tune of Rs. 21,783 at 10 per cent relatable to the said assessment year. Thus, he partly allowed the appeal as above and dismissed it in other respects.
9. The assessee-dealers agitated the matter further by filing appeals before the Tamil Nadu Sales Tax Appellate Tribunal (Main Bench), Madras-104 (for short "the Tribunal") in respect of all the assessment years in Tribunal Appeal Nos. 1401, 1402 and 1898 of 1982 relatable to the assessment years 1973-74, 1974-75 and 1975-76.
10. Pending those appeals, the Revenue in TMP Nos. 401, 389 and 297 of 1983 prayed for enhancement of the assessment by the inclusion of the deleted turnover relatable to gunnies for the aforesaid assessment years.
11. T.A. No. 2024 of 1982 is relatable to the assessment year 1976-77.
12. The assessee-dealers took up a stand before the Tribunal for the first time that there was no sale of polythene jerrycans (jars) for the sale of chemicals in respect of all the assessment year and what was done was that certain deposits were collected for the value of the containers in the process of sales of chemicals and the moment the containers were returned, the value collected for the containers in the process of sales of chemicals was returned. In order to support the said stand, no material, worth the name, had been placed before the Tribunal as respects the assessment years 1973-74, 1974-75 and 1975-76. However, the assessee-dealers produced two invoices before the Tribunal in relation to the assessment year 1976-77. One invoice that was produced, as revealed from the order of the Tribunal, is relatable to the sale of sulphuric acid in polythene jerrycans supplied by the purchaser. The other invoice that was produced is relatable to a case of supply of sulphuric acid in jar container belonging to the assessee-dealers, after collecting a sum of rupees from the purchaser for the jar containers.
13. The Tribunal, while dismissing the enhancement petitions - T.M.P. Nos. 401, 399 and 279 of 1983, remanded the appeals in T.A. Nos. 1401, 1402 and 1898 of 1982 by its common order dated June 5, 1984 to the assessing officer relatable to the claim of the assessee-dealers as respects the collection of deposit for the sale of chemicals in the polythene jerrycans and refund of the same as and when the said cans were returned, besides allowing exemption therefor.
14. The Tribunal, while disposing of the appeal in T.A. No. 2024 of 1982 by order dated 18th day of February, 1984, condoned the delay in filing "E1" forms for claiming exemption to the tune of Rs. 17,03,849.69. The Tribunal, however, remitted the matter relatable to exemption claimed on the basis of "E1" forms to consider the genuineness or otherwise of "E1" forms and grant relief therefor. The Tribunal also remitted the matter to the assessing officer relatable to the claim of exemption founded on sale of chemicals in polythene jerrycans either supplied by the purchasers or provided for by the assessee-dealers, after getting the value of the container and refunding the value received therefor on receipt of the said container on a turnover of Rs. 5,80,850.85 to the assessing officer for verification of such a claim with reference to the bills to be produced by the assessee-dealers and give relief therefor. The Tribunal also remitted the matter relatable to the inclusion of the gunny bags in the turnover of the assessee-dealers in a sum of Rs. 35,835 to the assessing officer for verification of the records and give relief therefor. The said appeal was thus disposed of by the Tribunal.
15. Aggrieved by the orders so passed by the Tribunal, the present actions - Tax Case (Revision) Nos. 917 to 920, 1010, 1011 and 1563 of 1985 had been resorted to by the Revenue.
16. From the pith and submission of Mr. K. Elango, learned Government Advocate (Taxes) representing the Revenue and Mr. Sriprakash, learned counsel representing Mr. N. Inbarajan, learned counsel appearing for the assessee-dealers, the points, as below, emerge for consideration :
(1) Whether the gunny bags, in which sugar - a controlled commodity - is packed and sold is assessable to sales tax, by including it in the turnover of the assessee, when especially sugar is exempt from tax ?
(2) (a) Whether gunnies for packing sugar, which it is said, do not form part of the bargain at all, were used by the assessee-dealers as a convenient and cheap mode of transport, and therefore, not exigible to tax ?
(b) Whether a mistake or error, apparent on the face of the record relatable to assessable turnover of gunny bags for the year 1974-75 prejudicially affecting the interests of the assessee required to be rectified or corrected and thereby relief to be given to the assessee-dealers ?
(3) Whether the remit order of the Tribunal as respects the acceptance of the contention projected for the first time by the assessee-dealers before the Tribunal as to the supply of chemicals either in the polythene jerrycans provided by the purchasers or in the polythene jerrycans provided by the assessee-dealers after receipt of the value of the containers and refunding the value of the containers to the purchasers on return of the same to verify the claim thereof by the assessing officer is sustainable in law ?
(4) Whether the remit order of the Tribunal to the assessing officer for verifying the genuineness or otherwise of "E1" forms, after the condonation of the delay in the belated production of the said forms is sustainable in law ?
17. Point No. 1 : No doubt true it is, that sugar had been exempted from sales tax by its inclusion as item 5 in the Third Schedule of the Tamil Nadu General Sales Tax Act, 1959 (Tamil Nadu Act No. 1 of 1959 - for short "TNGST"), as it stood then, by the salient provisions under section 8 of the CSTA. The moot question that arises for consideration is as to whether the gunnies, in which sugar - an exempted commodity - is packed and sold in a composite transaction is also exempt from tax. It is not as if the question, as posed arises now only for the first time. But the plain fact is that such a question did arise for consideration in series of decisions before this Court, earlier in point of time. We may now refer to some of the decisions, in a bid to solve the tangle posed for consideration.
(a) In Varasuki and Co. v. Province of Madras [1951] 2 STC 1, a Division Bench of this Court had an occasion to consider the very issue as to whether an exemption of an article, viz., "salt" from sales tax would enure to the benefit of a dealer to claim exemption in respect of sale value of the gunny bags in which the goods, viz., "salt" have been packed and sold.
(i) The Division Bench, while repelling the claim of the assessee, has held as hereunder :
".... On principle, it seems to us that any exemption of any article must be strictly construed and confined to the exemption itself and not extended. Thus, if salt is exempted, but not the gunny bags in which it is packed and sold, if we exempt the gunny bags without a special exemption to that effect, then gunny bags in which rice and other articles are packed, and drums and tins in which oil is packed, etc., will also claim exemption, and it is admitted that they have not been exempted and that they cannot be exempted because they will be included in the definition of 'turnover' under the rules."
(ii) Consequently, the exemption granted in respect of the sale of "salt" cannot be extended to the sale value of the gunnies, though the gunnies have been found used for packing and selling the "salt" as a composite transaction.
(b) The same view had been taken by a Division Bench of this Court in A. R. Manickam Chettiar & Sons v. State of Tamil Nadu [1992] 87 STC 134. It is but appropriate to pen down here, the rational provided by the Division Bench, while dealing with these aspects :
"The exemption under the Tamil Nadu General Sales Tax Act, 1959, is in respect of sale of paddy and rice. However, when those commodities are packed in gunny bags, the gunny bags cannot be said to lose their physical or commercial identify and merge as if they were part of the foodgrains themselves. The argument that since paddy and rice were exempt from sales tax and, therefore, no tax can be levied on the cost of the gunny bags in which they were packed is futile. When bags of paddy or rice are sold for a price which, as in the instant case as borne out from the reply of the assessee to the notice includes price of gunny bags, the turnover in respect of gunny bags would be liable to sales tax under the Act."
(c) Such a view was also followed in the case of State of Tamil Nadu v. S. Murugaiyan [1996] 101 STC 363 (Mad.).
18. On the face of the rationale or reasoning, as projected in the decisions referred to above, it goes without saying that in the instant case also, gunny bags, in which sugar - an exempted commodity - is packed and sold cannot at all be said to be exempt from tax on the ground that the contents of the container are exempt from tax. This point is therefore answered against the assessee-dealers.
19. Point No. 2(a) : It is not as if "sugar" - a controlled commodity - kept packed in any manner and sold at any price to be fixed by the manufacturer. Statutory prescriptions had been made as to the manner and methodology to be adopted for the packing of sugar, before ever the same is sold. Likewise, the price of sugar had also been statutorily fixed from time to time and the sugar cannot be sold at any price by the manufacturer, except the price fixed statutorily.
(a) Clause (2) of the Sugar (Packing and Marking) Order, 1970 [for short "S (P&M) Order"] prescribed the manner and method of packing. According to the said clause, unless otherwise permitted by the Central Government, a producer shall pack all sugar manufactured by vacuum pan process in new "A" twill jute bags, conforming to Indian Standard Specification Is : 1943 - 64, read with Amendment No. 1 thereof. Each bag shall be 112 cm. long and 67.5 cm. wide and shall weigh 1,190 grams. (The mouth of each bag shall be either machine stitched or hand stitched. If hand stitched, the stitches shall be in two rows with at least 14 stitches in each row).
(i) Clause (3) thereof prescribes that each bag of sugar shall contain 100 kilograms of sugar net.
(ii) Sub-clause (1) of clause 4 - relevant for the present purpose - prescribes that every producer shall at the time of packing mark on the bag in which the sugar is packed, its quality in terms of Indian Sugar Standards in force at the time and shall also ensure that the quality of sugar contained in the bag corresponds to the quality of sugar marked thereon until it is sold and delivered by him.
(b) Clause 3 of the Sugar (Price Determination for 1974-75 Production) Order, 1974 [for short "S (PDP) Order] dealing with the price of sugar produced in 1974-75 season reads as below :
"3. Price of sugar produced in 1974-75 season. - The Central Government hereby determines the prices specified in columns (2) to (7) of Schedule I hereto annexed, as the prices payable for the Indian Sugar Standard (ISS) grades of sugar mentioned therein packed in 'A' twill new gunny bags and produced in 1974-75 by all vacuum pan sugar factories situated in the areas specified in the corresponding entry in column (1) of the said Schedule, that is to say, the factories specified in Schedule II hereto annexed, and required to be supplied to the persons, organisations or State Government specified in the Order made by the Central Government under sub-clause (1) of clause 2 of the Levy Sugar Supply (Control) Order, 1972 :
Provided that where a sugar factory is situated at a distance exceeding five kilometres from the nearest railway station or an out-agency of the railway or from the godowns outside factory not concerned by rail, the producer may charge an additional one paisa per quintal of sugar per kilometre beyond five kilometres of the distance between the sugar factory and the railway station or out-agency of the railway, in case of despatches by rail or between the sugar factory and such godowns in case of delivery ex-godowns.
Explanation. - (a) The prices specified in columns (2) to (7) of Schedule aforesaid :
(i) do not include the basic excise duty and additional excise duty in lieu of sales tax, which the producer can recover, at the rate in force at the relevant time, in addition to the prices as determined by this order;
(ii) include charges on transport from factory godowns and loading of sugar at buyer's option on buyer's cars, lorries or other means of transport or into railway wagons at the railway station or siding generally used by the producer and include siding or wagon hauling charges; and
(iii) includes all other incidental charges including damage charges.
(b) The Indian Sugar Standard Grades (ISS Grade) means the grades represented by the Standard sealed samples of sugar in bottles issued by the Director, National Sugar Institute, Kanpur conforming to the standards prescribed by the Indian Standards Institution.
(i) Schedule I appended to the said order fixes ex-factory price (rupees per quintal) gradewise for ISS grades exclusive of excise duty relatable to various areas mentioned therein. Thus, the combined effect of S (PDP) Order is that sugar produced has to be packed and marked, according to the provisions contained in the said order.
(ii) One peculiar feature to be taken note is that every pack of sugar shall contain 100 kilograms of sugar net and the prices had been fixed for one quintal, that is to say, 100 kilograms net. In other words, the weight of gunny bags is excluded in determining the weight of sugar and the price is fixed for the net weight of sugar.
20. Construing gunnies utilised for packing sugar is pre-sale expenses, the assessing officer indicated in the pre-assessment notice for the inclusion of the value of gunnies in the turnover of the assessee-dealers for being taxed at the appropriate rate. But the assessee dealers, in their objections filed, were rest content in stating that there was no contract between them and the purchasers for the sale of gunnies. They did not, however, produce the agreement or contract containing terms, as respects gunny bags utilised in appropriating and packing sugar for the purpose of sale. The assessing officer simply overruled the objections, estimated the value of gunny bags, perhaps, at the market rate prevailing then and included the value of gunny bags in the turnover and assessed the dealers at the appropriate rate then in existence. The order so passed, as relatable to the assessment years 1973-74 to 1975-76 had, of course, been set aside by the Appellate Assistant Commissioner on the rationale that receptacles, namely, gunny bags utilised for packing sugar was for the purpose of cheap mode of transport, without there being any intention on the part of the assessee-dealers to charge anything extra for such receptacles. The Tribunal also confirmed such findings culminating in a challenge, at the instance of the Revenue, before this Court.
21. In arriving at a just conclusion on the issues focussed for consideration to this point, better it is, we feel, to refer to certain precedents, emerging from courts of superior jurisdiction - apex and High Courts - in this regard.
(a)(i) In Hyderabad Deccan Cigarette Factory v. State of Andhra Pradesh [1966] 17 STC 624 (SC) by a notification issued by the Andhra Pradesh State Government, sales or purchases of tobacco and all its products were exempted from sales tax. The department sought to assess the appellant, a manufacturer of and dealer in cigarettes, on the turnover in respect of packing materials consisting of cardboard and dealwood. The appellant contended that there was no sale of the packing materials as it sold only cigarettes at Rs. 8.50 per thousand without charging extra for packing materials and that the price was the same to whatever place they were sent. It was not disputed that there was no express contract of sale of the packing materials.
(ii) On such a factual matrix, the Supreme Court held :
"(i) that whether there was an agreement to sell the packing materials was a pure question of fact and that question could not be decided on fictions or surmises. The burden lay upon the Commercial Tax Officer to prove that a turnover was liable to tax and he could ask the assessee to produce relevant material. If the assessee did not produce the same, he could draw adverse inferences against the assessee; but he had to decide the crucial question whether the packing materials were the subject of the agreement of sale, express or implied. To ascertain these facts he could rely upon oral statements, accounts and other documents, personal inquiry and other relevant circumstances such as the nature and purpose of the packing materials used;
(ii) that in order to constitute a sale it was necessary that there should be an agreement between the parties for the purpose of transferring title to goods, that it should be supported by money consideration and that as a result of the transaction property should actually pass in the goods. Unless all these elements were present there could be no sale;
(iii) that what the sales tax authorities had to do was to ask and answer the question whether the parties, having regard to the circumstances of the case, intended to sell or buy the packing materials or whether the subject-matter of the contracts of sale was only cigarettes, and packing materials did not form part of the bargain at all, but were used by the sellers as a convenient and cheap vehicle of transport.
It might be that for the purpose of excise duty the packing materials were not separated from the cigarettes, but that could not possibly preclude the sales tax authorities from taxing the packing materials if they were the subject-matter of the agreements to sell."
(b)(i) In Burhwal Sugar Mills Company Ltd. v. Sales Tax Officer [1969] 23 STC 241 (All.), the assessee-company was engaged in the manufacture and sale of sugar, the turnover of which was exempt from sales tax. The assessee, however, was assessed to sales tax on the estimated turnover of gunny bags in which sugar was packed. The assessee filed an application under article 226 of the Constitution and contended that as sugar was exempt from tax, the value of gunny bags in which sugar was packed could not be subjected to sales tax. At the material time sugar was a controlled commodity and its price was fixed by the Government. There was no material on record to show that while fixing the sale price of sugar, the Government took into consideration the value of gunny bags, nor was there any indication as to the extent to which the sale price of sugar was enhanced on that account.
(ii) In such a context, the Division Bench of the Allahabad High Court held :
(i) that there being no express contract of sale of gunny bags between the assessee and its customers, the only question before the sales tax authorities was as to whether there was an implied contract of sale and such a question could no be decided on fictions and surmises. The burden lay upon the Sales Tax Officer to prove that the turnover was liable to tax and he could ask the assessee to produce relevant material. If the assessee did not produce the same, he could draw adverse inferences against the assessee; but he had to decide the crucial question whether the gunny bags were the subject of an agreement of sale, express or implied;
(ii) that the omission of the department to bring on record materials pointing towards the existence of an implied contract of sale of gunny bags either at the assessment or at the appellate stage showed that the department had in its possession no such material;
(iii) that as neither any contract of sale had been established nor had it been proved that the property in the gunny bags was transferred for money consideration, the finding, rather the assumption, of the sales tax authorities that there was a sale of gunny bags could not, in the circumstances of the case, be upheld, and therefore the assessment order could be quashed by a writ of certiorari.
(c)(i) In Commissioner of Sales Tax, M.P. v. Bhopal Sugar Industries Ltd. [1981] 48 STC 45 (MP), the assessee, a manufacturer of sugar which was an exempted commodity, sold the sugar packed in gunny bags. The price of sugar during the whole of the relevant periods was controlled under the Sugar Control Order, 1955, and its ex-factory price was fixed per bag from time to time by the Government. The Sugar Control did not authorise the Government to fix the ex-factory price of gunny bags. The price charged by the assessee for sugar was for 100 kgs. net and not for 101.2 kgs. which would be the gross weight of sugar plus the weight of jute bag. The question was whether the gunny bags in which the sugar was packed and sold was liable to sales tax.
(ii) A Division Bench of the Madhya Pradesh High Court held that sales tax on gunny bags could be imposed only on the basis that the assessee sold the bags to the purchasers of sugar. There was no express agreement for the sale of gunny bags. When goods packed in containers were sold, the property in the containers was also transferred to the purchaser. But before holding that there was an implied sale of containers, one had to exclude the possibility that the containers were used by the dealers as a convenient and cheap mode of transporting the goods to the purchaser without charging any price for them. Moreover the burden of proof that there was an implied sale of packing material or container was on the department and the assessee was not required to prove the negative. Having regard to the facts and circumstances of the case, it could not be said that there was any implied sale of gunny bags and, therefore, the sale of gunny bags was not liable to sales tax.
(d)(i) In Jamana Flour & Oil Mill (P) Ltd. v. State of Bihar for the assessment year 1964-65, the assessee, a registered dealers, under the Bihar Sales Tax Act returned a gross turnover of Rs. 53,39,981, which was accepted by the assessing officer. He determined the taxable turnover at Rs. 53,79,962 representing sale of wheat products taxable at 2 per cent. He found that the dealer had sold gunny bags in which wheat products had been packed and determined its turnover at Rs. 1,37,150 and assessed the same at 4 1/2 per cent.
(ii) The first appellate authority on assessee's appeal held that the learned assessing officer was not justified in adding back the price of container in the gross turnover. What he should have done is to tax a portion of the taxable turnover at a different rate or in other words out of the turnover taxable under the Bihar Sales Tax Act, the price of bags calculated at Re. 0.70 paise per hundred kilogram should have been deducted and taxed at 4 1/2 per cent. The remaining was to be taxed at 2 per cent.
(iii) The dealer filed a revision before the Tribunal and contended that the demand of sales tax payable at different rates on the calculated turnover of gunny bags was not at all warranted as no price had been charged for the containers. The Tribunal found:
(1) The dealer transferred the property in the gunny bags, the packing material, to the purchasers for price.
(2) The price of the gunny bags was included in the consolidated rates of price charged by the dealer.
(3) There was an implied agreement for the sale of gunny bags between the dealer and the different purchasers to whom the wheat products were supplied.
(4) The transfer of gunny bags was impliedly covered by the contract of sale with regard to the wheat products.
(iv)(a) On those findings, the Tribunal held :
"We hold that the learned lower courts were justified in levying tax at a different rate on the turnover on account of sale of gunny bags in which the wheat products were sold."
(b) It further found that the learned Deputy Commissioner has given a direction for determination of the turnover on account of sale of gunny bags. On being asked the applicant accepted that the accounts maintained by him would reveal the exact number of gunny bags used in the transaction of sale under consideration as also the price of the same. Hence we direct in modification of the orders passed by the learned Deputy Commissioner in this behalf that the learned assessing officer should ascertain from the accounts, the turnover on account of sale of gunny bags as container of wheat products during the period under consideration and assess tax thereon at the prescribed rate of 4 1/2 per cent. The balance turnover shall be assessed at 2 per cent.
(v)(a) A challenge before the Supreme Court was made as respects the decision rendered by the Patna High Court, on a reference under section 33(1) of the Bihar Sales Tax Act, 1959.
(b) The following question was referred to the High Court for its opinion, by the Commercial Taxes Tribunal of Bihar :
"Whether, in the facts and circumstances of the case, the direction of the Tribunal to ascertain the price of the containers (gunny bags) of wheat products sold for an all-inclusive price under the provisions of the Roller Mills Wheat Products (Price Control) Order, 1964, for taxing the same at a higher rate of 4 1/2 per cent is legally valid ?"
(c)(i) Reliance was placed on the provisions of clause 3 of the Roller Mills Wheat Products (Price Control) Order, 1964. That clause provides :
"3. Maximum ex-mill prices of wheat products. - No owner or other person in charge of a roller mill shall sell, or offer for sale, ex-mill any of the wheat products specified in column 1 of Schedule II to this Order....
(b) In the State of Maharashtra (excluding Greater Bombay) and in any other State [not being a State specified in sub-clause (a)], to which this order applies, at at price exceeding the price specified against the clause 3 thereof.
Explanation. - The prices referred to in this clause are :
(i) exclusive of...........
(ii) for net weight (inclusive of the cost of the bag), but where wheat products are sold in cloth bags in quantities of 40 kgs., net, 20 kgs. net and 10 kgs. net, a sum of 70 np., 37 np. and 19 np. respectively, towards the cost of the cloth bag may be charged in addition to the said prices."
(ii) The Supreme Court, in such context, held that as the Roller Mills Wheat Products (Price Control) Order contemplated a net weight which meant that the weight of the bag was included in the price to be charged by the dealer, the turnover of gunny bags was assessable and the direction of the Tribunal to separately ascertain the price of the gunny bags from the all-inclusive price and tax the turnover of gunny bags at the higher rate of 4 1/2 per cent was valid.
(e)(i) In Commissioner of Sales Tax, U.P. v. Rai Bharat Das & Bros. , the respondent carried on the business of mining and sale of silica sand. It supplied sand to the buyers packed in gunny bags and realised packing charges on the basis of metric tonnes.
(ii) The Tribunal found that there was an implied agreement for sending silica in gunny bags, that packing was done at the request of the buyer and that it was a convenient mode of delivery. The buyers had given directions for the quality of packing and all this was done in respect of the goods for putting them in a deliverable state. The Tribunal held that the packing charges were part of the "sale price" and were exigible to Central sales tax.
(iii) The High Court, in revision, held that the packing charges could not be included in the sale price.
(iv) On appeal to it, the Supreme Court held reversing the decision of the High Court, that in view of the finding recorded by the Tribunal that there was a contract for packing the silica sand in sound gunny bags, the packing charges realised by the respondent was an integral part of the sale price falling within "any sum charged for anything done by the dealer in respect of the goods", as contemplated by section 2(h) of the Central Sales Tax Act and were eligible to sales tax under that Act.
(f) In Ramco Cement Distribution Co. Pvt. Ltd. v. State of Tamil Nadu [1993] 88 STC 151 (SC), what the apex Court said (at page 163) is relevant and the same is reflected as below :
"The position in regard to packing charges as well as the excise duty on packing charges is also no different. As pointed out by this Court in the Hindustan Sugar Mils' case [1979] 43 STC 13 and in Commissioner of Sales Tax v. Rai Bharat Das & Bros. , packing charges form part of 'sale price' because the expression 'any sum charged for anything done by the dealer in respect of the goods' used in the definition in section 2(h) of the Central Sales Tax Act, 1956, squarely covers such charges, as packing is an integral element of the transaction of sale and packing charges are an integral part of the sale price. Once this is so, it follows that these charges and the excise duty thereon cannot be excluded from the turnover for purposes of the Central Sales Tax Act."
(g) In an unreported [Since reported in [1998] 109 STC 52 supra] decision of this Court in the case of State of Tamil Nadu v. Subramania Chettiar rendered in Tax Case (Revision) No. 885 of 1984, a Division Bench of this Court, in its order dated January 22, 1997 following the decision of the Supreme Court in Ramco Cement Distribution Co. Pvt. Ltd. [1993] 88 STC 151, held that receptacles or gunny bags in which groundnut kernels and rice were sold are liable to be included in the sales turnover of the assessee for assessment of appropriate rate of tax.
22. We shall now endeavour to give a legal fitment, in the light of the guidelines given by superior Courts of jurisdiction in various decisions, as referred to above, to the factual matrix of the case on hand. We may recapitulate here that there is a statutory obligation on the part of the assessee-dealers to pack the sugar - a controlled commodity - in the manner indicated as per the salient provisions adumbrated under S(P&M) Order and S(PDP) Order. This aspect of the matter was not at all taken into consideration by any of the authorities below. Further, the price of sugar - a controlled commodity - had been fixed per quintal, that is to say 100 kilograms net. The said control order does not at all fix any price - controlled or otherwise - for the gunny bags in which the controlled sugar are to be packed and sold. It is not as if the assessee-dealers can pack the controlled commodity - sugar in any manner other than the one prescribed under the said order. Further, the assessee-dealers admittedly scrupulously followed the statutory prescriptions as respects packing and fixing the price of sugar. This apart, the mind of the assessee-dealers reflected the utilisation of the said type of gunnies for packing of sugar in a deliverable state for the purpose of sale.
23. No doubt, in the process of verification and check of accounts by the assessing officer, he was unable to locate anything of the price at which such type of gunny bags were purchased by the assessee-dealers. Consequently, there was no other go for the assessing officer except to estimate the value of the gunny bags perhaps at the then prevailing market rate and get the same includible in the assessable turnover. The price fixed by him was at Rs. 3 per gunny bag. The estimated value of gunny bags ran into several lakhs of rupees for various assessment years. Admittedly, there is no material available pointing out any obligation on the part of the purchasers of sugar to return the gunny bags within a prescribed time. In such circumstances, it cannot at all be stated that the gunny bags utilised for packing sugar are all of insignificant value and utilised for the cheap mode of transport, without charging anything by the assessee-dealers. The property in the gunny bags got transferred in favour of the purchasers the moment sugar in a packed condition is sold. It is not a wise business proposition not to charge anything for the specialised type of gunny required to be utilised statutorily for packing, which are not of insignificant value. This apart, packing charges form part of the sale price, because of the expression "any sum charged for anything done by the dealer in respect of the goods" used in the definition of section 2(h) of Central Sales Tax Act as had been stated by the Supreme Court in the case of Ramco Cement Distribution Co. Pvt. Ltd. [1993] 88 STC 151, squarely covers such charges, as packing is an integral element of transaction of sale and packing charges are an integral part of sale price.
24. In this view of the matter, this point is answered accordingly.
25. Point No. 2(b) : A perusal of the pre-assessment notice issued relatable to the assessment year 1974-75 reveals that 3,60,700 gunny bags were utilised in packing and sale of sugar in inter-State and the value of gunny bags had been estimated at Rs. 3 per gunny bag, amounting to Rs. 10,82,100. Unfortunately, at the time of making final assessment order, the value of sugar with gunny bags sold in inter-State is put as Rs. 16,23,150 taxable at 10 per cent without making any reference to the total gunny bags utilised in such inter-Sate sales. As such, the assessee-dealers were wrongly assessed relatable to the turnover of gunnies to the tune of Rs. 5,41,050 (Rs. 16,23,150 minus Rs. 10,82,100). All canons of fairness, justice, equity and good conscience demand relief to be given to the assessee-dealers in respect of the turnover so wrongly assessed at 10 per cent. This point is answered accordingly.
26. Point No. 3 : There is no pale of controversy that the assessee-dealers projected the contention relatable to the supply of chemicals to the purchasers in polythene jerricans or other containers either supplied by the purchasers or provided themselves, after receiving the value of the containers by way of deposit undertaking to return the same as and when the can or container, in which chemicals were supplied to the purchasers, were returned to them. In support of such a contention, two invoices, as referred to in the process of summation of the cases were produced, for the first time, before the Tribunal. The Tribunal, we rather feel, unwittingly, in such a situation, remitted the matter to the assessing officer to verify the genuineness or otherwise of such a projection of the contention on the materials available on record. The projection of such a contention by the assessee-dealers had been met, we rather feel, in a half-hearted fashion, without understanding the significance and legal implications underlying the projection of such a contention.
27. It is not at all the case of the assessee-dealers that there was an obligation cast on the purchasers to return the cans or the containers, within a specified time. The absence of an obligation for return of the cans or containers would make all the difference, in the sense of treating the amount received by way of deposit in such transactions as a trading receipt, which could not be anything, but sale price and liable to be taxed. In order to explain the legal position, which emerges from a transaction of this nature, we may refer to a decision emerging from the apex Court in the case of State of Maharashtra v. Britannia Biscuits Company Limited .
(a) In that case, the respondent, a registered dealer, manufactured biscuits and sold them in tins. In respect of biscuits sold outside the City of Bombay and its suburbs the price charged by the respondent included the cost of the tins. But, while selling the biscuits in tins in the city of Bombay and its suburbs, the respondent collected the price of biscuits alone, and in regard to the tins it took a refundable deposit (20 per cent more than their value), with the stipulation that if the tins were returned within three months in good condition, the deposit would be returned. The deposits were credited in the "deposit account returnable tins". The tins so supplied were shown as its stock in its account books, but debited to the customer's account. When the tins were returned, a reverse entry was made in both the accounts. No sales tax was charged on the deposits for the tins. A separate price list was issued by the respondent for the city of Bombay and its suburbs, which carried an endorsement that the deposit would be charged at the time of supply, but would be refunded on return of the tins in good condition within three months from the date of supply. In the invoices issued by the respondent there was a column showing the number of tins supplied to the purchaser and the amount of deposit received from him. At the top of the invoice there was an endorsement that the company's liability to refund the value of returnable tins extended only up to three months from the date of the invoice. Notwithstanding the endorsements on the price list and the invoice the respondent was, in fact, receiving tins returned even after the expiry of three months and refunding the deposit amount. For the year 1967-68, the respondent received a total deposit of Rs. 12,97,229.05, out of which it refunded Rs. 11,29,202 on receiving back the tins. At the end of the accounting year there was a balance of Rs. 1,68,027.05 outstanding, and according to its accounting practice, the respondent wrote off half of the balance, viz., Rs. 84,013 and treated it as a trading receipt and transferred the amount to its profit and loss account.
(b) The question was whether the sum of Rs. 84,013 treated as a trading receipt was liable to sales tax under the Bombay Sales Tax Act, 1959. The assessing authority and the first appellate authority held that a sale of the tins took place when the respondent made the entries at the end of the accounting year debiting the sum of Rs. 84,013 from the "deposit account returnable tins".
(c) But the Appellate Tribunal held that there was a sale in the first instance and when the tins were returned there was a repurchase.
(d) On a reference, the High Court held that the arrangement between the respondent and the purchasers in the city of Bombay and its suburbs was one of bailment in so far as the tins were concerned, and not a transaction of sale. There was an obligation on the part of the respondent to accept the tins returned and a corresponding obligation on the part of the purchasers to return them; and, therefore, the amount written off at the end of the year on a notional basis could not be treated as the price of the tins sold and was not liable to sales tax.
(e) On appeal to it, the Supreme Court held :
"(i) that the question whether there was a sale at the end of the accounting year was not a pure question of law : it was a mixed question of law and fact;
(ii) that that question had to be determined on the precise terms of the transaction between the respondent and its customers and on this aspect the manner in which the respondent maintained its accounts or made entries therein was not very much relevant;
(iii) reversing the decision of the High Court, on the facts, that neither the endorsements on the price list and the invoice nor the practice of the respondent in accepting tins returned after the expiry of the period of three months created an obligation upon the customer to return the tins. It was left to his choice. If he found it more advantageous to return the tins and get back the deposit amount, he could do so. On the other hand, if he found it more advantageous to retain the tins and forego the deposit, it was equally open to him not to return them. The transaction was neither a 'bailment' nor a 'pledge'. It was in nature nearer to sale of good 'on approval' or 'on sale or return', basis, a situation contemplated by section 24 of the Sale of Goods Act, 1930. It was a composite transaction. It was, to start with, an entrustment which could result in a sale in case of non-return of the tins. If the tin was returned the transaction was one of entrustment. But if it was not returned within three months, it became a sale in accordance with the transaction. The fact that the respondent was receiving back the tins even after expiry of three months and returning the deposit, was more by way of grace rather than as a matter of obligation. Once there was no obligation to return the tins, the amount treated as trading receipt could not be anything but sale price and was liable to sale tax under the Bombay Sales Tax Act, 1959."
28. This decision is applicable on all fours to the facts of the instant cases. In this view of the matter, the remit order made by the Tribunal, as relatable to the sales turnover of the cans or containers, in which chemicals were packed and sold, cannot at all be stated to be sustainable in law and the same deserves to be set aside, by restoring the orders of the Appellate Assistant Commissioner and the assessing officer in this regard. This point is answered accordingly.
29. Point No. 4 : No doubt, the assessee-dealers did not produce "E1" forms for claiming exemption under section 6(2B) of the Central Sales Tax Act on a turnover to the tune of Rs. 17,03,849.69. As a matter of fact, they produced relevant "E1" forms for the said amount before the Appellate Assistant Commissioner, who, in turn, refused to accept the same as those forms were filed, after a long delay. While refusing to accept "E1" forms so filed by the assessee-dealers, it appears, the Appellate Assistant Commissioner did not understand the legal significance of such refusal.
30. "Sufficient cause" spoken of by Parliament in section 8(4) of the Central Sales Tax Act had been explained, in a scintillating fashion, by a Full Bench of this Court, in the case of State of Tamil Nadu v. Arulmurugan and Company [1982] 51 STC 381 (Mad.) and what the Full Bench said in that connection is getting reflected as below :
"The provision in section 8(4) of the Central Sale Tax Act, 1956, simply says that C forms shall be filed before the prescribed authority either within the prescribed time or 'within such further time as that authority may for sufficient cause, permit'. If there is sufficient cause, further time will have to be allowed. The proviso to the section does not insist that the assessee should establish before the prescribed authority that he was prevented by sufficient cause from filing the 'C' forms in time. 'Sufficient cause' spoken of by Parliament in section 8(4) is sufficient cause which appeals to the mind of the authority concerned and which enables it to allow further time without bothering about any onus on the assessee. However, the power to allow further time under rule 12(7) of the Central Sales Tax (Registration and Turnover) Rules, 1957, is severely circumscribed by the language of its proviso which is more or less fashioned after section 5 of the Limitation Act, 1963. Under the requirement laid down by the rule-making authority, the burden is on the assessee to make out sufficient cause by explaining why he did not file, and what prevented him from filing, the 'C' forms before the completion of the assessment. Under the statutory provision, the prescribed authority can allow further time for sufficient cause, without bothering to see whether anything or any occurrence prevented the assessee from filing the 'C' forms within time even in the position in which he actually found himself. The rule, however, casts the burden on the assessee and makes the position more difficult for him to invoke the power successfully. It also narrows down the discretion of the authority concerned. A rule cannot prevail against the statute by being repugnant to the statute. A study of the structure of the proviso to section 8(4) shows how Parliament's peculiar preference has worked in this regard. While Parliament was content to leave to the rule-making authority, namely, the Central Government, the task of prescribing a rule laying down the time-limit for furnishing 'C' forms, the power to allow further time, however, was not delegated to the rules, but deliberately enacted into the very text of the proviso to section 8(4). In this statutory format, with Parliament clearly expressing its mind on the subject, the Central Government must be held to possess no authority whatever to make any rules as respects the power to allow further time, let alone prescribe the conditions subject to which any such power could be exercised. In this sense, the proviso to rule 12(7) must be held to be ultra vires the rule-making power, to the extent that it is inconsistent with, or lays down tests or standards different from the proviso to section 8(4). Therefore where an assessee seeks to file 'C' forms beyond the stage of assessment, the relative power which the concerned authority should invoke is the power defined in the proviso to section 8(4) and not the power defined in the proviso to rule 12(7)."
31. Placing reliance on the Full Bench decision [State of Tamil Nadu v. Arulmurugan and Company [1982] 51 STC 381 (Mad.)], the Tribunal remitted the matter back to the assessing officer to consider "E1" forms so filed and grant relief to the assessee-dealers, if they are in order. The order so passed by the Tribunal, in such circumstances, cannot at all be stated to be not sustainable in law. This point is answered accordingly.
32. Various findings we have rendered as respects the points framed as above will lead to the results as below :
(i) Tax Case (Revision) Nos. 917, 919, 920, 1010 and 1011 of 1985 are allowed.
(ii) Tax Case (Revision) No. 918 of 1985 is partly dismissed, in ordering deletion of sales turnover on account of gunnies in a sum of Rs. 5,41,050 and directing the assessing officer to give relief to the assessee-dealers in that regard. This Tax Case (Revision), in other respects, shall stand allowed.
(iii) Tax Case (Revision) No. 1563 of 1985 is partly dismissed in affirming the remit order of the Tribunal with respect to the turnover of Rs. 17,03,849.69, in respect of which, condonation of delay in the production of "E1" forms had been accepted ordering relief to the assessee-dealers on the basis of the said forms so produced, if they are in order and it shall stand allowed, in other respects.
(iv) There shall, however, be no order as to costs, in the circumstances, in all these Tax Case (Revisions).
T.C. Nos. 917, 919, 920, 1010 and 1011/85 allowed; 918 and 1563/85 partly dismissed.