1989 (5) TMI 292 - SC - VAT and Sales Tax

Assessments made under the Andhra Pradesh General Sales Tax Act, 1957, on the value of packing material at the rate applicable to goods packed therein challenged Held that - Appeal allowed by way of remand. No attempt has been made by the tax authorities to ascertain the facts of each case and to determine what were the actual ingredients of the contract and the intention of the parties. Assumptions have been made when what was required was a detailed investigation into the facts. As indicated earlier the several possibilities which are open in cases of this kind, and how the ultimate conclusion can be vitally affected by the tests to be applied. Because of the lack of adequate and clear factual material, the High Court also was compelled to proceed on the basis of generalised statements and broad assumptions. We are unable, in the circumstances, to hold that the cases can be regarded as disposed of finally. It is regrettable but the cases must go back for proper findings on facts to be ascertained on fuller investigation.

Issues Involved:
1. Legality of assessments made under the Andhra Pradesh General Sales Tax Act, 1957, on the value of packing material at the rate applicable to goods packed therein.
2. Interpretation and application of Section 6-C of the Andhra Pradesh General Sales Tax Act.
3. Determination of whether packing materials were sold or merely transferred without consideration.
4. Constitutional validity of Section 6-C.

Issue-wise Detailed Analysis:

1. Legality of Assessments on Packing Material:
The appeals were directed against the High Court of Andhra Pradesh's judgment dismissing writ petitions challenging assessments under the Andhra Pradesh General Sales Tax Act, 1957, on the value of packing material at the rate applicable to goods packed therein. The appellants, manufacturers or dealers in beer and cement, contended that the assessments were improper, particularly for periods before July 8, 1983, and in relation to show cause notices issued under Section 6-C.

2. Interpretation and Application of Section 6-C:
Section 6-C, inserted by Andhra Pradesh Act No. 11 of 1984, states that when goods packed in any materials are sold or purchased, the packing materials shall be deemed to have been sold or purchased along with the goods, and tax shall be levied on such sale or purchase of the materials at the rate applicable to the goods themselves. The court noted that this provision seems to envisage cases where there is no actual sale of the packing material, but by legal fiction, such a sale is deemed to have occurred. The court found it difficult to comprehend the need for such a provision, suggesting it might merely clarify an existing legal situation.

3. Determination of Sale or Transfer of Packing Materials:
The court emphasized that the issue of whether packing material has been sold or merely transferred without consideration depends on the contract between the parties. It highlighted the necessity of factual investigation into the nature and ingredients of the transaction. The court referred to previous judgments, such as Hyderabad Deccan Cigarette Factory v. State of Andhra Pradesh and Commissioner of Taxes v. Prabhat Marketing Co. Ltd., to illustrate that whether there was an agreement to sell packing materials is a pure question of fact.

The court outlined factors to consider in determining if a transaction for sale of packing material is independent:
- The packing material is a commodity with its own identity and separate classification in the Schedule.
- There is no change in the packing material at the time of packing or use.
- The packing is reusable after the contents are consumed.
- The packing is used for convenience of transport.
- The consideration for the packing is merged with the product's consideration.

4. Constitutional Validity of Section 6-C:
The court rejected the appellants' contention that Section 6-C is constitutionally discriminatory and therefore invalid. It clarified that Section 6-C intends to explain that components determining the price of goods cannot be treated separately from the goods themselves. The section ensures that even if the value of packing material is considered, the same tax rate as the goods applies.

Conclusion:
The court found that the High Court and tax authorities had proceeded on assumptions without adequately investigating the facts of each case. The cases were remanded to the High Court for further consideration and disposal based on detailed factual findings. The assessing authority was directed to allow the dealer to show cause and determine the matter upon evidence. Appeals were allowed, and the impugned judgment and order of the High Court were set aside. No order as to costs was made.

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