1995 (11) TMI 406 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Entitlement of the assessee to deduction under section 2(r)(ii) of the M.P. General Sales Tax Act, 1958, for packing material used in the sale of goods.
2. Interpretation of Explanation I to section 2(o) of the M.P. General Sales Tax Act, 1958.
3. Harmonization of section 2(o) and section 2(r)(ii) of the Act.
4. Applicability of legal precedents and Supreme Court decisions.

Issue-wise Detailed Analysis:

1. Entitlement of the Assessee to Deduction under Section 2(r)(ii):
The assessee, dealing in agarbattis, claimed a deduction under section 2(r)(ii) of the M.P. General Sales Tax Act, 1958, for packing materials purchased from registered dealers. The authorities below denied this deduction, citing Explanation I to section 2(o). The court examined whether the assessee is entitled to this deduction. Section 2(r)(ii) allows for the deduction of the sale price of tax-paid goods used in further sales. The court concluded that the assessee is entitled to the deduction for packing materials used in selling agarbattis, as these materials are covered under item No. 15 of Part IV of Schedule II.

2. Interpretation of Explanation I to Section 2(o):
Explanation I to section 2(o) states that when goods are sold together with packing material, the sale price includes the cost of the packing material. The authorities interpreted this to mean that the cost of packing material should be included in the sale price of the finished goods, thereby denying the deduction under section 2(r)(ii). The court clarified that this explanation was added to make the definition of "sale price" self-contained and should not affect the deduction available under section 2(r)(ii). The non obstante clause "notwithstanding" in Explanation I does not override the relief provided in section 2(r)(ii).

3. Harmonization of Section 2(o) and Section 2(r)(ii):
The court emphasized that the provisions of section 2(o) and section 2(r)(ii) operate in separate areas and should not be confused. The determination of "sale price" under section 2(o) includes the cost of packing material, but this does not negate the deduction available under section 2(r)(ii). The court held that the deduction for tax-paid goods used in further sales, as provided in section 2(r)(ii), remains unaffected by Explanation I to section 2(o).

4. Applicability of Legal Precedents and Supreme Court Decisions:
The court referred to previous decisions in K.P. Sons v. Sales Tax Officer, Kukreja Udyog v. Commissioner of Sales Tax, and Himalaya Chatni Bhandar v. Commissioner of Sales Tax, which supported the view that the deduction under section 2(r)(ii) is admissible despite Explanation I to section 2(o). The court also considered the Supreme Court decision in Raj Sheel v. State of Andhra Pradesh, which upheld the validity of a similar provision but did not contradict the court's interpretation of the M.P. General Sales Tax Act.

Conclusion:
The court concluded that the authorities below erred in denying the deduction under section 2(r)(ii) to the assessee. The assessee is entitled to the benefit of deduction for the packing material used in selling agarbattis. The question of law was answered in favor of the assessee/applicant and against the Revenue/non-applicant. The reference was answered in the negative.