2000 (6) TMI 793 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether bottles used for selling Indian Made Foreign Liquor (IMFL) can be considered as packing material.
2. Whether there was a sale of packing material (bottles) in the transactions involving the sale of IMFL.

Issue-wise Detailed Analysis:

1. Whether bottles used for selling Indian Made Foreign Liquor (IMFL) can be considered as packing material:

The court analyzed the definition and concept of "packing material" under various dictionaries and legal precedents. The term "packing" includes the activity of wrapping or encasing goods for storage, transportation, or sale. The court referred to the Encyclopaedia Britannica, which describes bottles as narrow-necked containers for holding liquids, emphasizing their role as packing material. The court concluded that bottles are indeed packing material as they are used to contain and transport liquids like IMFL. The court stated, "Bottles are nothing but vessels used for selling the liquor containing therein and as such, they are packing material."

The court also examined the legislative intent and provisions of the Rajasthan Sales Tax Act, 1954, particularly the last proviso to section 5(1), which prescribes the rate of tax on the sale of packing material when goods are sold packed in any material. The court held that the proviso applies to the sale of packing material, whether charged separately or not, at the same rate as the goods themselves. Therefore, the court concluded that bottles used for selling IMFL are packing material subject to tax under the Act.

2. Whether there was a sale of packing material (bottles) in the transactions involving the sale of IMFL:

The court examined whether there was an agreement, express or implied, to sell the bottles along with the IMFL. The court referred to the principle that the burden of proof lies on the Revenue to establish that a turnover is liable to tax. The court stated, "Whether there was an agreement to sell the packing materials is a pure question of fact and that question cannot be decided on fictions or surmises."

The court analyzed previous judgments, including the Hyderabad Deccan Cigarette Factory case, where it was held that the sale of packing materials must be established as a fact and cannot be presumed. The court emphasized that the consideration for the sale must be referable to the commodity in question. In the present case, the court found that the Revenue had not established that there was a sale of bottles independent of the sale of IMFL. The court stated, "The Revenue has sought to apply the rate of taxes on the sale of bottles for separate consideration because of the provisions contained in the proviso to section 5(1) of the Act referred to above by raising the presumption of sale."

The court concluded that the transfer of property in bottles along with IMFL did not constitute a separate sale of bottles for consideration. The court held that the Revenue had failed to establish that the transfer of property in bottles had taken place for consideration referable to the transfer of property in packing material. Therefore, no tax could be levied on the sale of bottles as packing material.

Conclusion:

The court allowed the writ petitions, setting aside the impugned orders of assessment, interest, and penalty affirmed by the Rajasthan Taxation Tribunal. The court held that bottles used for selling IMFL are packing material but concluded that there was no sale of bottles independent of the sale of IMFL. Consequently, no tax could be levied on the sale of bottles as packing material. The court stated, "The Revenue authorities have failed to decide the question about the sale of packing material by establishing that the transfer of property in packing material has taken place for consideration referable to the transfer of property in packing material."