2005 (9) TMI 610 - HC - VAT and Sales Tax

Issues Involved:
1. Taxability of containers (gunny bags) used for packing exempted goods.
2. Existence of an implied agreement for the sale of containers.
3. Burden of proof for establishing an implied sale.
4. Applicability of precedent judgments.

Detailed Analysis:

1. Taxability of Containers (Gunny Bags) Used for Packing Exempted Goods:
The petitioner, a dealer registered under the Assam Sales Tax Act, 1947, was engaged in the manufacture and sale of exempted food items such as atta, maida, suji, besan, and bran. The petitioner was assessed to tax on the containers (gunny bags) used for selling these exempted goods for multiple periods between March 31, 1988, and September 30, 1993. The assessing officer concluded that there was an implied agreement for the sale of the containers, making the petitioner liable for tax. The revisional authority upheld this view, stating that the purchase price of the gunny bags was reflected in the trading account, implying that the sale price of the goods included the price of the bags.

2. Existence of an Implied Agreement for the Sale of Containers:
The petitioner argued that there was no express agreement for the sale of the containers and that the findings of the authorities did not support an implied agreement. The petitioner relied on the Supreme Court judgment in Hyderabad Deccan Cigarette Factory v. State of Andhra Pradesh [1966] 17 STC 624, which held that an implied sale of containers could not be inferred without specific facts indicating such an intention. The revisional authority's findings that the goods were sold in net weight and that gunny bags were the cheapest and most convenient mode of packing did not justify an inference of an implied sale.

3. Burden of Proof for Establishing an Implied Sale:
The petitioner contended that the burden of proving an implied sale of containers lay with the Revenue, which failed to discharge this burden. The petitioner argued that the mere reflection of the purchase turnover of the containers in the trading account did not establish an implied sale. The petitioner could have neutralized this turnover against profits, and the authorities erred in concluding that the sale price included the price of the containers based solely on this fact.

4. Applicability of Precedent Judgments:
The petitioner cited several judgments to support their argument:
- Hyderabad Deccan Cigarette Factory [1966] 17 STC 624 (SC): The Supreme Court held that an implied sale of containers could not be inferred without concrete facts indicating such an intention.
- Dhariwal Bottle Trading Company v. State of Maharashtra [1995] 99 STC 326 (Bom HC): The Bombay High Court ruled that an implied sale of containers could not be inferred unless the containers were of an extraordinary nature.
- Commissioner of Sales Tax, Madhya Pradesh, Indore v. Bhopal Sugar Industries Ltd. [1981] 48 STC 45 (MP HC): The Madhya Pradesh High Court held that the mere passage of property in the container to the purchaser did not establish an implied sale.

The court analyzed these judgments and concluded that the question of an implied sale of containers is a factual determination based on the totality of circumstances. The court emphasized that the intention of the parties, the value of the containers, and their convenience for handling and transport are relevant factors. In this case, the court found that the gunny bags were the cheapest and most convenient mode of packing and transporting the goods, and the transactions were based on the net weight of the goods without considering the weight of the containers.

Conclusion:
The court concluded that there was no implied sale of the gunny bags. The packaging material used was of the cheapest variety, and it would have been inconvenient or impossible to sell the goods in loose form. The reflection of the purchase turnover of the gunny bags in the trading account as sales expenses did not justify an implied sale. The court held that the petitioner could have adjusted these expenses against profits, and the more reasonable inference was that there was no implied sale of the containers.

Judgment:
The writ petition was allowed, and the impugned assessment orders for the periods in question, as well as the revisional order dated July 11, 1998, were set aside.

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