1992 (2) TMI 333 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Implied agreement to sell containers (Hessian Polythene Alkathene bags).
2. Inclusion of container cost in the sale price of insecticides.
3. Tax exemption on second sales of containers.
4. Separate identity and reuse of containers.
5. Correct approach and reasoning by the Commissioner of Commercial Taxes.

Issue-wise Detailed Analysis:

1. Implied Agreement to Sell Containers:
The vexed question in this special appeal under section 23 of the Andhra Pradesh General Sales Tax Act, 1957, is whether there was any implied agreement to sell the containers, i.e., Hessian Polythene Alkathene (H.P.A.) bags, in which the appellant-assessee sold insecticides manufactured by it during the assessment year 1978-79. The appellant contended that there was an implied contract for the sale and purchase of the containers, supported by the fact that the containers retained their physical or commercial identity after the removal of the insecticide and had a longer life and higher value compared to ordinary gunny bags.

2. Inclusion of Container Cost in the Sale Price of Insecticides:
The appellant claimed exemption in respect of turnover towards second sales of H.P.A. bags, contending that the sale price was inclusive of the cost of the containers. The assessing authority denied the exemption because the sale bills did not indicate that the sale price of B.H.C. 10 per cent was inclusive of the value of the containers. The appellant argued that the cost of the container was significant and constituted about 10 per cent of the value of the goods, indicating an implied agreement for their sale.

3. Tax Exemption on Second Sales of Containers:
The Assistant Commissioner (C.T.), Appeals, Guntur, allowed the appeal, stating that the sale value of insecticides was inclusive of containers purchased from other registered dealers in the State, and no tax was leviable on the sales of packing material of the appellant as a second dealer in packing material. The Commissioner of Commercial Taxes, Hyderabad, revised this order, holding that the exemption granted was irregular and that the transaction should not be viewed as two separate transactions (one for the product and another for packing material).

4. Separate Identity and Reuse of Containers:
The appellant asserted that the H.P.A. containers did not lose their identity, were reusable, and were costlier than ordinary gunnies. The Supreme Court in Raj Sheel v. State of Andhra Pradesh emphasized that whether the packing material has been sold or merely transferred without consideration depends on the contract between the parties and the factual investigation into the nature and ingredients of the transaction. The appellant's assertions about the containers' identity and reuse were not rejected or disputed by the Commissioner.

5. Correct Approach and Reasoning by the Commissioner of Commercial Taxes:
The Court found that the Commissioner did not approach the matter correctly and his reasoning was flawed. The Commissioner held that the H.P.A. container became part of the product for sale price and lost its separate identity. However, the Supreme Court in Raj Sheel's case highlighted that the issue of whether the packing material has been sold or transferred without consideration depends on the contract between the parties and requires factual investigation.

Conclusion:
The order of the Commissioner dated January 26, 1985, was set aside with a direction to reconsider the matter afresh, taking into consideration all the correspondence and other material on record after fresh enquiry if necessary and after giving reasonable opportunity to the assessee, the appellant herein, in accordance with law. The special appeal was accordingly allowed with the aforesaid directions. No costs were awarded.