1990 (7) TMI 334 - HC - VAT and Sales Tax

Summary

Issues:
Interpretation of the definition of "packing material" under the Entry Tax Act and its application to brown paper used for packing bidis. Determination of whether brown paper should be taxed as packing material or as raw material based on its usage and inclusion in the registration certificate.

Analysis:
The case involved a reference under section 44(1) of the M.P. General Sales Tax Act, 1958, along with section 13 of the Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 (Entry Tax Act). The question raised was whether brown paper, listed as raw material in the sales tax registration certificate of a bidi manufacturer, should be subject to entry tax at 2% as packing material, even though the definition of packing material did not explicitly include it, and it could not be taxed at ½% as raw material.

The Tribunal had initially subjected the brown paper to entry tax as packing material, considering its usage for packing bidis, despite not being explicitly listed as packing material before October 1, 1978. The Court analyzed the definition of "packing material" under section 2(ff) of the Entry Tax Act, which referred to goods used in packing other goods. Brown paper was later included as packing material by a notification dated October 1, 1978. The Court held that since the list of goods for packing material was illustrative, brown paper could not be excluded from being treated as such merely because it was not initially listed. As the brown paper was used for packing bidis and not as raw material, its treatment as packing material was deemed appropriate, regardless of its mention in the registration certificate.

Furthermore, the Court addressed the contention regarding the tax rate discrepancy, stating that the question referred did not pertain to the rate of entry tax on packing material. Any such discrepancy would be an error that could be rectified through appropriate legal procedures. Ultimately, the Court ruled in favor of the department, emphasizing that the brown paper should be taxed as packing material at the prevailing rate, answering the reference in the affirmative.

In conclusion, the Court's decision clarified the application of the definition of packing material to brown paper used for packing bidis, emphasizing its usage over its initial listing status and dismissing the argument regarding the tax rate discrepancy. The judgment favored the department's stance on taxing the brown paper as packing material, highlighting the importance of the goods' actual function and prevailing legal provisions.