1971 (4) TMI 85 - HC - VAT and Sales Tax

Summary

Issues:
1. Liability to pay sales tax on the turnover of empty gunnies, mats, coir twine, etc., used for transporting copra.

Analysis:
The petitioner, a dealer in coconuts, pepper, copra, etc., was assessed to sales tax for the year 1963-64 under the Central Sales Tax Act, 1956. The petitioner contended that the turnover of Rs. 26,460.19 should be deducted for assessment under rule 9(f)(ii) of the Kerala General Sales Tax Rules, 1963. Additionally, they argued that even if the deduction was not allowable, the disputed turnover should be taxed at 2%, as the sale of packing materials was incidental to the sale of copra. The Tribunal overruled both contentions, leading to an appeal. The first contention regarding deduction was not pursued further, and the focus shifted to taxing the turnover at 2% instead of 10%. The Tribunal had taxed the turnover at 10% based on the separate pricing of packing materials in the invoices, indicating a sale of these materials alongside copra.

The definitions of "sale price" and "turnover" under the Central Sales Tax Act, 1956 were crucial in this case. The turnover of a dealer comprises the consideration for the sale of goods and charges for anything done in respect of the goods. Sales tax is attracted to packing materials only if there is an agreement to sell them, either expressly or by necessary implication. The Supreme Court's decisions in various cases, including Hyderabad Deccan Cigarette Factory v. State of A.P., Commissioner of Taxes v. Prabhal Marketing Co. Ltd., and Razack & Co. v. State of Madras, established the principles guiding such cases. These judgments emphasized the need for an agreement between parties for the sale of goods, with the property passing to the buyer. The burden lies on the tax officer to prove that a turnover is taxable, considering factors like oral statements, accounts, and circumstances surrounding the transaction.

The Court referred to the Hyderabad Deccan Cigarette Factory case, where it was clarified that the mere separate pricing of packing materials in invoices does not imply a sale of those materials unless there is a clear agreement to do so. The value of packing materials compared to the goods must be significant to infer a separate contract of sale. In this case, the Court found that the value of the packing materials was insignificant compared to the copra, hence no separate contract for their sale could be implied. Relying on the principles laid down by the Supreme Court, the Court set aside the Tribunal's decision, holding that the turnover of Rs. 26,460.19 should be taxed at 2% and not 10%. The petition was allowed, with no order as to costs.