1997 (10) TMI 381 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Taxability of gunny bags used for packing sugar.
2. Inclusion of gunny bags used for packing sugar in the turnover.
3. Validity of the Tribunal's remit order concerning supply of chemicals in polythene jerrycans.
4. Validity of the Tribunal's remit order concerning the genuineness of "E1" forms.

Detailed Analysis

Issue 1: Taxability of Gunny Bags Used for Packing Sugar
The primary question was whether gunny bags used for packing sugar, an exempt commodity, are also exempt from tax. The court referred to previous decisions, such as Varasuki and Co. v. Province of Madras [1951] 2 STC 1 and A.R. Manickam Chettiar & Sons v. State of Tamil Nadu [1992] 87 STC 134, which clarified that the exemption of an article does not extend to its packing materials. Thus, the court held that "gunny bags, in which sugar-an exempted commodity-is packed and sold cannot at all be said to be exempt from tax on the ground that the contents of the container are exempt from tax."

Issue 2(a): Inclusion of Gunny Bags in Turnover
The court examined whether gunny bags used for packing sugar were merely a convenient and cheap mode of transport and thus not taxable. The court referred to the Sugar (Packing and Marking) Order, 1970 and Sugar (Price Determination for 1974-75 Production) Order, 1974, which mandated specific packing requirements and fixed the price of sugar per quintal net of the weight of the gunny bags. The court concluded that the statutory obligation to pack sugar in specified gunny bags indicated that these bags were an integral part of the sale. Therefore, "the property in the gunny bags got transferred in favour of the purchasers the moment sugar in a packed condition is sold," making them taxable.

Issue 2(b): Error in Assessable Turnover for 1974-75
The court identified an error in the assessable turnover for the year 1974-75, where the value of gunny bags was wrongly assessed. The pre-assessment notice estimated the value of gunny bags at Rs. 10,82,100, but the final assessment included Rs. 16,23,150. The court ordered the correction of this error, stating, "All canons of fairness, justice, equity and good conscience demand relief to be given to the assessee-dealers in respect of the turnover so wrongly assessed at 10 per cent."

Issue 3: Tribunal's Remit Order on Polythene Jerrycans
The Tribunal had remitted the case to the assessing officer to verify the claim that chemicals were supplied in polythene jerrycans provided by either the purchasers or the assessee-dealers, with the value of the containers being refunded upon their return. The court found this remit order unsustainable, citing the absence of an obligation for purchasers to return the containers. The court referred to State of Maharashtra v. Britannia Biscuits Company Limited [1995] 96 STC 642 (SC), concluding that the amount received by way of deposit should be treated as a trading receipt and thus taxable. The court restored the orders of the Appellate Assistant Commissioner and the assessing officer.

Issue 4: Tribunal's Remit Order on "E1" Forms
The Tribunal had condoned the delay in filing "E1" forms and remitted the matter to the assessing officer to verify their genuineness. The court upheld this order, relying on the Full Bench decision in State of Tamil Nadu v. Arulmurugan and Company [1982] 51 STC 381 (Mad.), which explained that "sufficient cause" for delay in filing forms should be liberally construed. The court stated, "The order so passed by the Tribunal, in such circumstances, cannot at all be stated to be not sustainable in law."

Conclusion
1. Tax Case (Revision) Nos. 917, 919, 920, 1010, and 1011 of 1985 are allowed.
2. Tax Case (Revision) No. 918 of 1985 is partly dismissed, with relief granted for the wrongly assessed turnover of Rs. 5,41,050.
3. Tax Case (Revision) No. 1563 of 1985 is partly dismissed, affirming the Tribunal's remit order concerning "E1" forms and allowing it in other respects.
4. No order as to costs in all these Tax Case (Revisions).

T.C. Nos. 917, 919, 920, 1010, and 1011/85 are allowed; 918 and 1563/85 are partly dismissed.