Karnataka High Court
Balakrishna Hatcheries vs Clarification And Advance Ruling ... on 16 January, 2004
Equivalent citations: [2004]137STC187(KAR), 2004 AIR - KANT. H. C. R. 1344
JUDGMENT R.V. Raveendran, J.
1. Sri Anand, learned Government Advocate takes notice for respondent.
2. Appellant is engaged in poultry farming. It sells dressed chicken. The term "dressed" with reference to chicken means bled, scalded, de-feathered, de-boned and freezed. The dressed chicken is sold by the appellant in polythene bags. The polythene bags are closed either by stapling or by crimping and fastening. Stapling is done by using an ordinary stapler. Crimping and fastening (by twisting an aluminium wire around the crimped portion) is done by using a crimping machine. The name and address of the appellant and the description of the contents are printed on the polythene bag.
3. Entry 22 of the Fifth Schedule to the Karnataka Sales Tax Act, 1957 ("the Act" for short) exempts from tax "eggs and meat including flesh of poultry except when sold in sealed containers", Correspondingly, entry 8(vii) of Part F of Second Schedule subjects "meat and dressed chicken sold in sealed containers" to tax under Section 5(3)(a) of the Act, at nine per cent from June 1, 2003.
4. Appellant contends that only where a container is hermetically sealed, that is, made airtight and watertight, the container can be said to be a sealed container. Alternatively it is submitted that "sealed container" is one where access to the contents cannot be had without breaking the fastening on the container or the container itself. The appellant alleges that the staple or crimp wire used for closing the polythene bag in which it sells the dressed chicken, can be removed by opening the two closed ends of the staple/crimp wire, without breaking them and without damaging the polythene bag ; and on such removal of the staple/crimp wire, the polythene bag can be opened and the dressed chicken can be taken out without tearing or damaging the plastic bag. It is contended that stapling or crimping is done, only to facilitate easy carrying and to ensure that the dressed chicken does not slip out of the plastic bag. Stapling or crimping does not make the polythene bag airtight or watertight. According to appellant, when goods are sold in a polythene bag which is merely stapled or crimped and where the contents can be removed by merely opening the staple/crimp wire without tearing the polythene bag and without breaking the staple/crimp wire, the container cannot be considered to be a sealed container.
5. As the department was expressing a view that the sale by appellant attracted sales tax, the appellant made an application to the authority for clarification and advance rulings under Section 4 of the Act. The said authority after hearing, has made an order dated September 22, 2003 holding that sale of "dressed chicken" in polythene bags closed by either stapling/crimping is covered under entry 8(vii) of Part F of Second Schedule as "sale of dressed chicken in sealed containers". The said ruling of the authority is challenged in this appeal. On the contentions urged, the question that arises for consideration is whether dressed chicken, when sold in a polythene bag which is closed by a staple or closed by crimping and twisting an aluminium wire around the crimp, is to be considered as sale in a sealed container.
6. The term "sealed container" has been considered by the Supreme Court in Commissioner of Sales Tax, U.P. v. G.G. Industries [1968] 21 STC 63. The question that arose for consideration in that decision was whether sale of confectionery (chocolates, lollipops, etc.,) packed in tins and cardbox and closed by the use of cellophane paper amounted to sale in a sealed container. The Allahabad High Court held that the sale was not in a sealed container, accepting the contention of the assessee that the word "sealed" meant "bearing the impression of a signet in wax, etc., as evidence or guarantee of authenticity, or fastened with a seal so close that access to the contents is impossible without breaking the fastening". The Supreme Court did not agree. Reversing the decision of the Allahabad High Court, the Supreme Court held thus :
"The learned counsel for the appellant (Department) contends that the expression 'sealed container' means a container which is 'so closed that access (to the contents) is impossible without breaking the fastening'. This is one of the meanings given to the word 'sealed' in the Shorter Oxford English Dictionary. We are of the opinion that his contention must be accepted......There are four ways of selling confectionery : (1) in sealed tins ; (2) in sealed cardboxes or bottles ; (3) in non-sealed cardboxes or bottles ; and (4) loose. According to the learned counsel for the respondent the only category which does not enjoy the exemption given by the notification is the first category, i.e., sale in sealed tins. But it is difficult to appreciate why the authority issuing the notification should distinguish between category one and category two. In the case of a sealed tin it has to be cut ; in the case of a sealed cardbox the covering has to be torn. A sealed tin may or may not be hermetically sealed. Therefore, the fact that a sealed tin may be airtight and a sealed cardbox is never really airtight does not assist us in deciding the point..... It seems to us that this packet would fall within the expression 'sealed container* occurring in the notification, (emphasis* supplied)
7. In Commissioner of Sales Tax v. National Chikki Mart [1977] 39 STC 447, the Bombay High Court following the decision in G.G. Industries [1968] 21 STC 63 held :
"To determine whether a container is sealed or not, it is not relevant to consider as to whether to break the covering any instrument or knife is needed or whether it could be done with bare hands or fingers. What is really to be considered is whether the contents of the container could be got at or whether access could be had to them without in any manner breaking any portion of the cover. It is not necessary for a container to be a sealed container that to get access to its contents, the container or cover has to be broken by removing the fastening although it would be the most common method of opening a sealed container. All that is necessary for a container to be a sealed container is that access cannot be had to its contents without breaking the fastening or some portion of the container."
8. In Nanjuneshwara Mart v. State of Karnataka [1992] 84 STC 534, a division Bench of this Court considered whether sale of Instant Idli Mix, Instant Vada Mix, Instant Gulab Jamoon Mix packed in polythene bags stitched at the openings were taxable as food packed in sealed containers. This Court by applying the definition laid down by the Supreme Court in G.G. Industries [1968] 21 STC 63 that container which is "so closed that access (to the contents) is impossible without breaking the fastening is a sealed container", held that as the bag in which the goods were sold were stitched at the openings, and as it was impossible to have access to the contents without breaking the fastening, the goods were to be considered as sold in sealed containers.
9. It is thus well-settled that a container is considered to be a sealed container if it is closed in a, manner that it is not possible to access the contents or remove the contents without breaking either the container or the fastening by which it is closed. But controversies arise as what is "closed" and what is "breaking". A container, to be "closed", need not be hermetically sealed. It need not be airtight or watertight. It is sufficient if the "closing" of the container prevents the contents being accessed or removed or substituted or reinserted without breaking the container or the fastening.
"Breaking" the container or "breaking the fastening" does not necessarily mean cutting or breaking the container or the fastening to pieces. "Breaking" refers to parting, dividing, tearing, rupturing or severing, either wholly or partially, by applying a strain or force. For example, a staple which is the "fastening" on the container is "broken" not only when it is severed or cut into pieces, but even when the two closed ends are "opened" or "parted" and it is pulled out. Similarly if a crimped bag is closed by twisting an aluminium wire or by putting an elastic band over the crimped portion, the removal of such fastening would amount to breaking the fastening. Anything done to the fastening which has the effect of undoing the fastening will be "breaking the fastening".
A container will not of course be considered a sealed container if the contents thereof can be removed or accessed without breaking or tearing the container and without removing or disturbing the fastening. The appellant's contention that as the plastic bag containing the dressed chicken is not hermetically sealed, it is not a sealed container is untenable, being opposed to the decision in G.G. Industries . The contention that because the staple or crimp wire can be removed without damaging the bag by parting the two closed ends of the staple or crimp wire, a stapled or crimped plastic bag is not sealed container, is also equally untenable. We have examined stapled/crimped polythene bags which are used by the appellant. It is not possible to access or remove the contents (dressed chicken) from the polythene bag without removing the staple or the crimp wire. Applying the principle laid down in G.G. Industries , there can be no doubt, that the manner in which appellant packs and markets the dressed chicken amounts to selling them in sealed containers.
10. The appellant placed strong reliance on the decision of the Delhi High Court in Commissioner of Sales Tax, Delhi v. Pop Corn [1982] 49 STC 36, wherein the decision in G.G. Industries was distinguished. The Delhi High Court considered the question whether pop corn sold in loosely stapled polythene bags can be considered as sale in sealed containers. Distinguishing the decision in G.G. Industries the Delhi High Court observed thus :
"In the present case, the finding of the Financial Commissioner is that the stapling was loose. A polythene bag containing pop corns loosely stapled was produced before us as an example of the type of stapling that had been done by this dealer during the relevant period. Mr. Chawla, for the Commissioner of Sales Tax, does not dispute this sample, but submits that normally a person would break the stapling even in such a case in order to extract the pop corn easily.
Mr. Chawla may be correct and it is probable that a person greedily anxious to get at the contents would break the staples to do so, yet it is possible to get at the pop corn without breaking the staples.
As such, in the facts and circumstances of this case, we feel that the stapled polythene bags are not sealed containers, especially as the Supreme Court in G.G. Industries [1968] 21 STC 63 held that access should be impossible without breaking the fastening" (emphasis* supplied) The decision in Pop Corn [1982] 49 STC 36 (Delhi) is clearly distinguishable. On facts, it was found that the contents (pop corn) of the loosely stapled polythene bag could be got at without breaking the staple. As stated earlier "breaking the staple" includes removing the staples by parting the two closed ends. In the case considered by the Delhi High Court, a finding of fact that the contents (pop corn) could be removed from the bag, without removing the staple was recorded. Consequently it was rightly held that it was not a sealed container. The said decision is therefore of no assistance.
11. Our conclusions are based on the description of the goods in entry 22 of Fifth Schedule and entry 8(vii) of Part F of the Second Schedule, understood and interpreted in the light of the law laid down by the Supreme Court in G.G. Industries case [1968] 21 STC 63. We however, feel it necessary to digress and refer to the significant changes that have taken place in food processing and packaging, in the decades which have passed since the decision in G.G. Industries was rendered. With the advancement of science and technology and increased consumer awareness, there is a manifold increase in the use of ordinary non-hermetical sealed containers as also hermetically sealed containers, for packing cereals, foodstuff and flesh of poultry, etc. Foodgrains, vegetables, fruits, flesh of poultry, etc., were earlier being sold by measure or weight in loose condition. Now they are regularly sold in cleaned and readily packed condition (which fall within the meaning of sealed containers). Citizen's desire to have clean and wholesome foodstuffs and increased awareness of hygiene have made the use of non-hermetic ally sealed containers common and routine. In fact it has become a necessity and not a luxury. In view of the wide use of non-hermetical packing in the sale of cereals and other food articles (including dressed poultry), there is a significant shift in the meaning of the words "foodstuff in sealed containers". Nowadays, general public identify "foodstuff in sealed containers" as referring to processed foodstuff (by use of preservatives) sold in hermetically sealed containers, made of aluminum foil, glass, plastic or similar packing material which have a longer shelf life. It is such processed foodstuff sold in hermetically sealed containers that should attract tax. The normal cleaned food items, which are not chemically treated or processed and which are put in ordinary containers without hermetical sealing, for purposes of convenience, portability and cleanliness should have the benefit of exemption from tax under Fifth Schedule. We suggest for the consideration of Legislature, appropriate amendment to entries 8(vii) of Part F of Second Schedule and entries 22 and 26 of Fifth Schedule, so that sale of meat/eggs/flesh of poultry/fish/prawns/shrimps/lobsters are exempted from tax, unless sold in hermetically sealed containers.
12. We find no reason to interfere with the order of the authority. The appeal is therefore dismissed.
Sri B Anand, learned Government Advocate is permitted to file memo of appearance for respondent within six weeks.