1998 (9) TMI 611 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of separate sales tax rates for cement and its packing material (gunny bags).
2. Application of Supreme Court decisions on the nature of sale transactions and their relevance to the Bihar Finance Act.

Issue-wise Detailed Analysis:

1. Validity of Separate Sales Tax Rates for Cement and Its Packing Material:

The petitioner, a cement manufacturing company, challenged the assessment order for the period 1995-96, where the Deputy Commissioner of Commercial Taxes, Hazaribagh, questioned the separate taxation of gunny bags at 7% instead of the 11% applicable to cement. The petitioner argued that they paid sales tax on gunny bags at the prescribed rate and separately charged customers for the bags, including sales tax, as reflected in their cash/credit memos.

The Deputy Commissioner disagreed, citing that cement and its packing material (gunny bags) are inseparable in sales transactions. Referring to the Supreme Court decision in Raj Sheel v. State of Andhra Pradesh, the Commissioner held that the packing material should be taxed at the same rate as the cement, leading to the inclusion of the gunny bags' sale price in the cement's taxable amount.

2. Application of Supreme Court Decisions:

The Supreme Court's decision in Raj Sheel v. State of Andhra Pradesh was pivotal. It addressed whether packing materials like bottles and gunny bags should be taxed separately or as part of the goods they contain. The Court emphasized that the nature of the sale-whether the packing material is sold independently or as part of the goods-depends on the facts of each case, requiring a detailed factual investigation.

The Supreme Court outlined several factors to determine if packing material is sold independently:
1. The packing material's identity and separate classification.
2. No chemical or physical change in the packing during use.
3. Reusability of the packing material.
4. Packing used for transport convenience without affecting the goods' quantity.
5. Separate consideration for packing material merged with the product's price.

The Deputy Commissioner's decision lacked a detailed factual investigation into these factors, relying instead on assumptions and the general practice of selling cement in gunny bags. This approach was contrary to the Supreme Court's directive for a thorough factual examination.

Subsequent Supreme Court decisions in Vasavadatta Cements v. State of Karnataka and Premier Breweries v. State of Kerala further clarified the issue. In Vasavadatta Cements, the Court reiterated the need for factual investigation, while in Premier Breweries, a larger Bench distinguished the specific provisions of the Kerala and Karnataka Acts from the Andhra Act, emphasizing that the turnover of packing materials should be included in the goods' turnover and taxed at the same rate.

Conclusion:

Given the absence of provisions in the Bihar Finance Act similar to those in the Andhra, Karnataka, and Kerala Acts, the principles established in Raj Sheel v. State of Andhra Pradesh were applicable. The nature and ingredients of the sale transactions involving cement and gunny bags needed a detailed factual investigation to determine the intention of the parties and the true nature of the transactions.

The High Court set aside the impugned assessment order and remitted the case back to the assessing authority for a proper factual investigation, following the guidelines established in Raj Sheel v. State of Andhra Pradesh. The writ petition was allowed, with no order as to costs.