2008 (6) TMI 558 - AT - VAT and Sales Tax

Summary

Issues Involved:
1. Whether plastic hangers can be considered as packaging materials under the West Bengal Value Added Tax Act, 2003.
2. The applicable tax rate for plastic hangers.

Issue-wise Detailed Analysis:

1. Whether plastic hangers can be considered as packaging materials under the West Bengal Value Added Tax Act, 2003:

The applicant, a reseller of ready-made garments, challenged the order of the Sales Tax Officer (STO/RJ) rejecting the classification of plastic hangers as packaging materials and directing a tax rate of 12.5% on them. The applicant argued that plastic hangers should be taxed at 4% as they are used to retain the style, look, shape, and pattern of the garments, making them packaging materials.

The applicant relied on the Gujarat High Court decision in *State of Gujarat v. Kishor Timber [1991] 83 STC 370*, where wooden pallets were considered as packing materials under the Gujarat Sales Tax Act, 1969. The court observed that packing materials are those used to put things together compactly for transport or sale. The applicant argued that plastic hangers serve a similar purpose by keeping garments in a saleable condition.

Conversely, the respondent-authorities contended that hangers are not used for making a packet or facilitating transport but for hanging clothes, which does not qualify them as packing materials. They argued that hangers are distinct commercial commodities used for displaying garments rather than packing them.

The tribunal noted that the Gujarat High Court's decision was specific to wooden pallets, which could hold and protect items, unlike hangers. It emphasized that hangers are primarily used for hanging clothes and not for packing or protecting them. The tribunal concluded that hangers do not meet the common parlance definition of packing materials and are not used primarily for packing purposes.

2. The applicable tax rate for plastic hangers:

The applicant claimed a lower tax rate of 4% under section 16(2A) of the VAT Act, which applies to containers or packing materials sold with taxable goods. However, the tribunal pointed out that for an item to qualify for this lower rate, it must be recognized as packing material or a container.

The tribunal reviewed Part III of Schedule C to the VAT Act, listing industrial inputs and packing materials, and noted that hangers were not included. The listed items, such as boxes, cases, bags, and crates, share the characteristic of holding and protecting goods, unlike hangers.

The tribunal observed that the applicant admitted that garments are packed in cardboard boxes after being placed on hangers, indicating that hangers are not essential for packing and delivery. It concluded that hangers are not commonly used for packing ready-made garments and do not qualify as packing materials under the VAT Act.

Conclusion:

The tribunal ruled that plastic hangers cannot be considered as packing materials within the meaning of the VAT Act, 2003, and thus, the applicant's claim for a lower tax rate was rejected. The petition was dismissed on contest with no order as to costs.