2000 (7) TMI 931 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Tax liability on gunny bags used for packing sugar.
2. Applicability of previous court decisions.
3. Interpretation of relevant sections of the U.P. Trade Tax Act.
4. Retrospective application of Section 3-AB of the U.P. Trade Tax Act.

Issue-wise Detailed Analysis:

1. Tax Liability on Gunny Bags Used for Packing Sugar:
The applicant, a sugar mill, did not admit any tax liability on gunny bags used for packing sugar, arguing that sugar is exempt from sales tax and the price of gunny bags was not separately charged. The assessing authority imposed sales tax on the value of the gunny bags, treating it as an implied sale. The first appeals were dismissed, and the Trade Tax Tribunal upheld the orders. The applicant contended that no tax should be levied since no separate price for gunny bags was charged.

2. Applicability of Previous Court Decisions:
The applicant relied on several decisions, including *Commissioner of Sales Tax v. L.H. Sugar Factory, Pilibhit* (1996 UPTC 101), *U.P. Sugar Co. Ltd., Padrauna v. Trade Tax Officer, Padrauna* (1999 UPTC 326), and *Kichha Sugar Co. Ltd., Kichcha, Nainital v. Commissioner of Sales Tax, U.P., Lucknow* (1999 UPTC 716), which held that unless a separate price is charged for gunny bags, their supply with sugar does not attract sales tax. The respondent cited *Chhatta Sugar Company Ltd. v. Commissioner of Sales Tax* (1991 UPTC 341), where it was held that the price of gunny bags was considered in the price fixation of levy sugar, implying a contract of sale of gunny bags.

3. Interpretation of Relevant Sections of the U.P. Trade Tax Act:
Section 2(i) of the U.P. Trade Tax Act defines "turnover" and includes the price of packing material in which goods are packed. Section 3 provides for the liability to tax, and Section 3-A specifies the rates of tax. The court noted that the intention of the State was not to levy tax on packing materials where the goods sold in the packing material are exempt from tax.

4. Retrospective Application of Section 3-AB of the U.P. Trade Tax Act:
Section 3-AB, inserted with effect from August 1, 1990, clarifies that packing materials sold with goods are liable to tax at the rate applicable to the goods or are exempt if the goods are exempt. The court referred to the Statement of Objects and Reasons, which indicated that Section 3-AB was introduced to clarify existing provisions and is thus retrospective. The court cited legal principles and precedents supporting the retrospective application of declaratory statutes.

Conclusion:
The court concluded that the Tribunal was not justified in levying tax on gunny bags used by the applicant for packing sugar. The revisions were allowed, and it was held that no tax liability existed for the gunny bags in this context. The petitions were allowed with no order as to costs.