1965 (2) TMI 92 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Scope and ambit of the notification dated 28th February, 1955, exempting potatoes from sales tax.
2. Whether the respondent, a dealer in potatoes, qualifies as a "dealer" under section 2(g) of the Madras General Sales Tax Act in relation to gunnies.
3. Inclusion of the value of gunnies in the exemption granted for potatoes.
4. Interpretation of "sale price" and "turnover" under the Central Sales Tax Act.
5. Applicability of rule 5 of the General Sales Tax (Turnover and Assessment) Rules, 1939.
6. Relevance of judicial precedents in determining the taxability of packing materials.

Detailed Analysis:

1. Scope and Ambit of the Notification Dated 28th February, 1955:
The primary issue revolves around whether the notification exempting potatoes from sales tax also extends to the packing materials (gunnies) used for potatoes. The court clarified that the exemption is confined only to the price paid for potatoes and does not extend to the packing materials.

2. Definition of "Dealer" Under Section 2(g) of the Madras General Sales Tax Act:
The court examined whether the respondent qualifies as a "dealer" in relation to gunnies. It was established that the respondent indulged in the commercial activity of buying and selling gunnies, thus falling within the definition of a "dealer." The court emphasized that "carrying on the business" is a broad term that includes activities like buying and selling gunnies for profit.

3. Inclusion of the Value of Gunnies in the Exemption:
The respondent argued that the value of gunnies should be included in the exemption for potatoes. The court rejected this argument, stating that the turnover for potatoes is distinct from the turnover for gunnies. The court noted that the respondent himself indicated in his returns that the sale of gunnies is taxable, thus acknowledging the separate nature of these turnovers.

4. Interpretation of "Sale Price" and "Turnover":
The court analyzed the definitions of "sale price" and "turnover" under the Central Sales Tax Act. It concluded that the price received by the respondent included the price of gunnies, and there was an implied contract for the sale of gunnies. The court dismissed the argument that the price was exclusively for potatoes, emphasizing that the contract for the sale of gunnies could be implied.

5. Applicability of Rule 5 of the General Sales Tax (Turnover and Assessment) Rules, 1939:
The respondent relied on rule 5, which allows deductions for charges related to packing and delivery. The court clarified that this rule pertains to charges for labor and services, not the cost of materials used for packing. Therefore, the cost of gunnies could not be deducted from the turnover under this rule.

6. Relevance of Judicial Precedents:
The court referred to several precedents to support its decision. Key cases included:
- Varasuki & Co. v. Province of Madras: Exemption of an article does not extend to its receptacles.
- Indian Leaf Tobacco Development Co. Ltd. v. The State of Madras: Packing materials for exempted goods are taxable.
- Chidambara Nadar Sons and Co. v. State of Madras: Packing materials for exempted goods are taxable.
- Nagarathinam and Bros. v. The State of Madras: Gunny bags for exempted vegetables are taxable.
- Nizam Sugar Factory Ltd. v. Commissioner of Sales Tax, Hyderabad: Gunny bags for exempted sugar are taxable.
- Hyderabad Deccan Cigarette Factory v. State of Andhra Pradesh: Packing materials for exempted cigarettes are taxable.

The court distinguished these cases from those cited by the respondent, such as United Bleachers Ltd. v. The State of Madras and The Guntur Tobaccos Ltd., Guntur v. The Government of Andhra, which dealt with contracts for services and not the sale of goods.

Conclusion:
The court concluded that the respondent is liable to pay sales tax on the value of gunnies used for packing potatoes. The appeal was allowed, and the judgment of the lower court was overturned. The appellant was awarded costs from the respondent.