1955 (8) TMI 33 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the packing material used for redried tobacco constitutes a sale and is liable to sales tax.
2. Whether the process of packing is an integral part of the drying process or an extraneous activity.
3. Interpretation of relevant provisions of the Madras General Sales Tax Act.

Issue-wise Detailed Analysis:

1. Whether the packing material used for redried tobacco constitutes a sale and is liable to sales tax:

The petitioners, M/s. A.S. Krishna & Co., operate a plant for redrying raw tobacco and use materials for packing the redried tobacco. They charge customers a consolidated fee for both redrying and packing. The Sales Tax Appellate Tribunal held that, although tobacco itself is exempt from sales tax, the packing material is not. The Tribunal reasoned that the packing materials were transferred to the customers for consideration, thus constituting a sale subject to sales tax.

2. Whether the process of packing is an integral part of the drying process or an extraneous activity:

The petitioners argued that packing is an integral part of the drying process, making the contract one of work and labour without involving a sale. The Government Pleader countered that packing is separate from drying and that the materials are sold to the customers. The Court examined literature on tobacco production, which indicated that packing is used to preserve the dried tobacco rather than being part of the drying process itself. The Court concluded that packing materials are used to preserve the product and are not integral to the drying process, similar to how bottles preserve medicines but are not part of the manufacturing process.

3. Interpretation of relevant provisions of the Madras General Sales Tax Act:

The Court analyzed various legal precedents and statutory provisions to determine the nature of the contract. The Court distinguished between contracts for labour and materials, contracts for the sale of finished products, and contracts where materials are ancillary to the main service. The Court found that the present case did not fit neatly into these categories as the assessee did not have property in the tobacco and only performed the drying process for a fee. However, the packing materials were considered extraneous and marketable, used solely to preserve the dried tobacco.

The Court also reviewed relevant Indian case law, including decisions from the Madras High Court and the Assam High Court, which supported the view that packing materials are taxable even if the primary product is exempt. The Court emphasized that the materials used for packing are separable from the drying process and are sold to the customers, thus constituting a sale under the Madras General Sales Tax Act.

Conclusion:

The Court held that the packing materials are "goods" as defined under the Act and that their transfer to customers for consideration constitutes a sale. The turnover from these transactions is therefore liable to sales tax. The Sales Tax Tribunal's decision to reject the petitioners' contention was upheld, and the revision petitions were dismissed with costs.

Judgment:

The revision petitions were dismissed, and the petitioners were ordered to pay costs, including an advocate's fee of Rs. 250 for all the revisions.