1995 (3) TMI 444 - HC - VAT and Sales Tax

Summary

Issues Involved:

1. Levy of trade tax on gunny bags used as packing material for sale of sugar.
2. Validity of the circular issued by the Commissioner, Trade Tax, U.P., dated April 2, 1991.
3. Applicability of the decision in Chhatta Sugar Company Ltd. v. Commissioner of Sales Tax.
4. Consideration of implied contracts for sale of packing materials.
5. Examination of relevant Supreme Court decisions and their applicability.
6. Burden of proof on the taxing authority.
7. Availability of alternative remedies.

Issue-wise Detailed Analysis:

1. Levy of trade tax on gunny bags used as packing material for sale of sugar:
The petitioners, manufacturers of sugar, challenged the levy of trade tax on gunny bags used for packing sugar. They argued that sugar is exempt from sales tax and that no separate charge was made for gunny bags. The State contended that the sale of gunny bags was included in the price of sugar and thus taxable.

2. Validity of the circular issued by the Commissioner, Trade Tax, U.P., dated April 2, 1991:
The circular mandated assessing authorities to levy tax on gunny bags based on the decision in Chhatta Sugar Company's case. The petitioners argued that this circular left no discretion to the assessing authorities and was based on a flawed decision. The court found that the circular was not sustainable as it ignored other relevant considerations and judgments.

3. Applicability of the decision in Chhatta Sugar Company Ltd. v. Commissioner of Sales Tax:
The court examined the decision in Chhatta Sugar Company's case, which was based on the Supreme Court's ruling in Jamana Flour & Oil Mill case. The court noted that the decision in Chhatta Sugar was based on specific facts and the Sugar Price Fixation Order, which were not applicable in the present case. The court concluded that the Chhatta Sugar decision could not be applied generally to all transactions involving gunny bags.

4. Consideration of implied contracts for sale of packing materials:
The court referred to the Division Bench decision in Burhwal Sugar Mills' case, which emphasized that there must be an express or implied contract for the sale of packing materials. The court noted that the mere inclusion of the price of gunny bags in the price of sugar does not automatically imply a contract for their sale. The court highlighted the need for a factual inquiry to determine the existence of such a contract.

5. Examination of relevant Supreme Court decisions and their applicability:
The court discussed several Supreme Court decisions, including Jamana Flour & Oil Mill and Raj Sheel v. State of Andhra Pradesh. The court noted that these decisions emphasized the need for a factual inquiry to determine whether there was an express or implied contract for the sale of packing materials. The court found that the decision in Jamana Flour & Oil Mill was based on specific provisions of the Wheat Price Fixation Order, which were not applicable in the present case.

6. Burden of proof on the taxing authority:
The court reiterated that the burden of proof lies on the taxing authority to show that the turnover is liable to tax. The court emphasized that the assessing authority must consider all relevant facts and circumstances, including the nature and purpose of the packing material, to determine whether there was an implied contract for its sale.

7. Availability of alternative remedies:
The court acknowledged the petitioners' argument that the circular left no discretion to the assessing authorities, making alternative remedies ineffective. The court agreed that the circular effectively precluded any different view by the assessing authorities, justifying the direct challenge to the circular and the assessment orders.

Conclusion:
The court quashed the circular issued by the Commissioner, Trade Tax, U.P., dated April 2, 1991, and set aside the assessment orders and recovery proceedings based on it. The court directed the assessing authorities to reconsider the taxability of gunny bags after conducting a factual inquiry and considering all relevant factors as laid down in various judgments. The writ petitions were allowed, and no costs were imposed.