1976 (1) TMI 168 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Implied sale of packing material and its taxability.
2. Taxability of hessian cloth post-amendment with retrospective effect.

Detailed Analysis:

Issue 1: Implied Sale of Packing Material and Its Taxability

The Board of Revenue, Madhya Pradesh, Gwalior referred the question of whether an implied sale of packing material taxable to State and Central sales taxes could be presumed. The periods of assessment covered were Diwali 1965-66, 1966-67, and 1967-68. The assessee was assessed under both the Madhya Pradesh General Sales Tax Act, 1958, and the Central Sales Tax Act, 1956.

The Board of Revenue found that the price of hessian, bardana, crates, and other packing materials was included in the price of bidis. The assessee admitted that bidis had to be supplied packed in crates, and purchasers would not pay for bidis if supplied loose. Thus, the sale of packing material was implied in the contract of sale, and the property in the packing material passed from the assessee to the purchasers.

The court referred to several precedents, including the Supreme Court's decision in Hyderabad Deccan Cigarette Factory v. State of Andhra Pradesh, which laid down tests to determine if packing materials were part of the sale. The court concluded that the question of whether there is an implied contract of sale of packing material is a pure question of fact depending on the circumstances found in each case. In this case, the Tribunal found that the price of packing materials was considered in fixing the price of bidis, indicating an implied sale.

Issue 2: Taxability of Hessian Cloth Post-Amendment with Retrospective Effect

The second question was whether hessian cloth could be treated as outside entry No. 6 of Schedule I and thus liable to State and Central sales taxes for the period prior to 6th May 1971, following the amendment and validation given retrospective effect by the M.P. General Sales Tax (Amendment and Validation) Act, 1971.

The court noted that the amendment to Schedule I of the principal Act excluded hessian cloth from the definition of "cloth," making it taxable. The amendment was given retrospective effect, thereby nullifying earlier decisions that had exempted hessian cloth from tax. The court referred to the decision in Commissioner of Sales Tax, M.P. v. Bharat Kala Bhandar, which concluded that hessian cloth used in packing material did not fall in the category of "cloth" for purposes of entry No. 6, Schedule I, to the State Act, post-amendment.

Conclusion:

1. In the facts and circumstances of the case, an implied sale of packing material taxable to State and Central sales taxes can be presumed.
2. As a result of the amendment giving retrospective effect, hessian cloth will be treated as outside entry No. 6 of Schedule I and would therefore be held liable to State and Central sales taxes for the period prior to 6th May 1971.

A copy of this judgment under the seal of the court and the signature of the Registrar shall be sent to the Tribunal for disposing of the case accordingly. The parties shall bear their own costs. Reference answered accordingly.