1992 (11) TMI 259 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Taxability of components of chemical fertilizer mixtures.
2. Deductibility of the value of packing materials.
3. Mode of levying tax on liquor contained in bottles.

Issue-wise Detailed Analysis:

1. Taxability of Components of Chemical Fertilizer Mixtures:
The petitioner is engaged in the manufacture and sale of chemical fertilizer mixtures under entry 48-A(ii) of the Second Schedule to the Karnataka Sales Tax Act, 1957. The Revenue argued that the sale or purchase of several components of the chemical fertilizer mixture should be taxed under section 5(1) of the Act, relying on a notification issued under section 8-A prior to the introduction of entry 48-A(ii). However, this question was concluded against the Revenue by a Full Bench decision in Shaw Wallace & Co. Ltd. v. State of Karnataka [1993] 91 STC 37. Following this decision, the Court directed the assessing authority to redo the assessment by applying the Full Bench's decision regarding the chemical fertilizer mixture and its components. The Court rejected the Revenue's plea to apply section 6 of the Act, as it was raised too late.

2. Deductibility of the Value of Packing Materials:
The petitioner, a dealer in liquor, claimed the benefit of rule 6(4)(ff) of the Rules under the Act, which provides for the deduction of packing charges from the total turnover. The Court analyzed section 2(1)(v) and section 2(1)(u-1) of the Act, which define "turnover" and "taxable turnover," respectively. It was held that pre-sale and pre-delivery packing charges are part of the "turnover" and cannot be deducted from the "total turnover." Rule 6(4)(ff) was interpreted to apply only to post-sale or post-delivery packing charges. The Court referred to the decision in State of Tamil Nadu v. V.V. Vanniaperumal & Co. [1990] 76 STC 203 and Premier Breweries Ltd. v. State of Karnataka [1984] 56 STC 14, which supported this interpretation. Consequently, the petitioner's contention for deduction of packing charges was rejected.

3. Mode of Levying Tax on Liquor Contained in Bottles:
The petitioner argued that liquor and bottles were sold under separate contracts, and thus, should be taxed separately under entry 109 (bottles) and entry 38 (liquor) of the Second Schedule. Entry 38 was amended to include "all liquor including bottled liquor," differentiating the tax rates based on whether excise duties were included in the sale consideration. The Court referred to the decision in State of Karnataka v. Shaw Wallace and Co. Ltd. [1981] 48 STC 169, which held that separate agreements for bottles and liquor should be taxed distinctly. The Court also considered the Supreme Court's decision in Raj Sheel v. State of Andhra Pradesh [1989] 74 STC 379, which emphasized examining the true nature of the transaction to determine whether the sale of packing material is an independent transaction. The Court concluded that if there are two independent sales, entry 38 cannot be attracted to levy tax on the sale price of the bottle. The Tribunal and statutory authorities were directed to examine the facts in light of the Raj Sheel decision.

Conclusion:
The petitions were partly allowed. The assessment orders were set aside with directions to make fresh orders regarding "chemical fertilizer mixtures" and "liquor including bottled liquor" in light of the judgment. No costs were awarded.