1961 (4) TMI 80 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the price of the materials used for packing redried tobacco is liable to be included in the taxable turnover of the assessees.
2. Whether the packing materials used by the assessee can be considered sold and therefore liable for the levy of sales tax.

Issue-wise Detailed Analysis:

1. Inclusion of Packing Materials in Taxable Turnover:
The primary issue is whether the price of materials used for packing redried tobacco should be included in the taxable turnover of the assessees. The assessees argued that packing is an integral part of the redrying process, making the contract one of work and labour, with no sale involved. Conversely, the Government Pleader contended that the price of packing materials should be included in the taxable turnover as the property in those materials is transferred to the customers for a price, making the transaction a sale.

2. Sale of Packing Materials:
The court examined whether the packing materials used by the assessee to pack the tobacco, for which the dealer charges at a uniform rate, can be considered sold and therefore liable for sales tax. Previous judgments, such as Krishna & Co., Ltd. v. State of Andhra and Hanumantha Rao v. State of Andhra, held that the materials used in packing were sold and thus taxable. However, these decisions were prior to the Supreme Court's rulings in State of Madras v. Gannon Dunkerley & Co., Pandit Banarsi Das Bhanot v. The State of Madhya Pradesh, and Peare Lal Hari Singh v. State of Panjab, which necessitated reconsideration.

Relevant Provisions and Precedents:
The court referred to the relevant provisions of the Madras General Sales Tax Act, particularly the definitions of "sale" and "turnover." It also discussed the principle that to constitute a sale, there must be an agreement relating to the transfer of goods, completed by the passing of title in those goods. The court noted that previous decisions had distinguished between contracts for work and labour and contracts for the sale of goods.

Application of Supreme Court Judgments:
The court applied the principles from the Supreme Court's decision in State of Madras v. Gannon Dunkerley & Co., which held that in an entire and indivisible contract, there is no sale of goods, and the State cannot impose a tax on the supply of materials used in such a contract. The court concluded that the process of redrying tobacco is one, entire, and indivisible, and the packing of redried tobacco is an integral part of this process. Therefore, the transaction could not be split into separate contracts for the transfer of materials and the provision of services.

Conclusion:
The court determined that the contract between the assessees and their constituents is one and indivisible, with no sale of materials as such involved in the transaction. The decisions in Krishna & Co., Ltd., Guntur v. State of Andhra and Hanumantha Rao v. State of Andhra did not align with the principles laid down by the Supreme Court. Consequently, the court held that it was not within the competence of the assessing authorities to impose tax on the supply of materials used in these contracts, treating them as sales. The assessments made on the impugned transactions were unsustainable, and the revision cases were allowed. The taxes collected were ordered to be refunded to the petitioners, with costs awarded to the petitioners.

Final Judgment:
Petitions allowed.