2010 (3) TMI 1018 - HC - VAT and Sales Tax

Whether on the facts and in the circumstances of the case and especially in view of the Tribunal s finding that the said packing material namely plastic drums and plastic bags have been used by the appellant/dealer for convenience of transport and the quantity of transported goods was not dependent on the packing; the Tribunal was not justified in law in not following the ratio of the Bombay High Court judgment in the case of Dhariwal Bottle Trading Company v. State of Maharashtra 1995 (2) TMI 371 - BOMBAY HIGH COURT ? Whether on the facts and in the circumstances of the case and in view of the fact that the appellant/dealer did not produce any contract for sale/purchases of not only the packing material but also of the packed contents; the Tribunal was justified in law in holding that no purchase tax under section 14 would be leviable in respect of the purchases made before August 11 1988 on the ground that there is no contravention of recitals of declaration in form 14 as there was an implied sale of the packing material namely plastic drums and plastic bags by the appellant to his vendees? Held that - It is to be noted that in the matter of Dhariwal Bottle Trading Company supra this court held that an implied sale can be inferred only where the container is of such an exceptional type and of unusually high value which in the ordinary course of business is not used for packing the goods in question. In the present case the respondents exported the chemicals out of India. For the purpose of export the respondents used 315 new plastic drums as stated in the invoices produced by the learned counsel appearing for the applicant. This itself shows that the respondents especially purchased the new plastic drums for the purpose of export of chemicals. In any case the seller has to decide which type of packing material is required for safe dispatch of goods sold and supplied so that the purchaser shall not raise any objection about quantity/quality when he gets delivery of the goods. Therefore the judgment in case of Dhariwal Bottle Trading Company cannot be considered for deciding the present case in hand. In favour of revenue.

Issues Involved:
1. Whether the Tribunal was justified in not following the ratio of the Bombay High Court judgment in Dhariwal Bottle Trading Company v. State of Maharashtra.
2. Whether the Tribunal was justified in holding that no purchase tax under section 14 of the BST Act, 1959 would be leviable in respect of the purchases made before August 11, 1988, on the ground that there is no contravention of recitals of declaration in form 14 as there was an implied sale of the packing material.

Detailed Analysis:

Issue 1: Justification of the Tribunal in not following the ratio in Dhariwal Bottle Trading Company v. State of Maharashtra

The Tribunal's decision was challenged on the grounds that it did not adhere to the precedent set in Dhariwal Bottle Trading Company v. State of Maharashtra. The applicant argued that the Tribunal erred in concluding that the respondents complied with the terms of form No. 14 and were not liable for purchase tax on packing materials. The applicant contended that the Tribunal mistakenly relied on the Supreme Court's ruling in Raj Sheel v. State of Andhra Pradesh, which emphasized that the sale of packing material is an independent transaction depending on several factors, including the identity and classification of the packing material, its reuse capability, and whether it is used merely for transport convenience.

The Tribunal, however, found that the respondents' use of plastic drums and bags for packing chemicals, which were exported, implied a sale of the packing materials. The Tribunal differentiated this case from Dhariwal Bottle Trading Company by noting that the respondents specifically purchased new plastic drums for export, indicating a conscious choice for safe transport. The Tribunal concluded that the facts of the present case did not warrant the application of the Dhariwal Bottle Trading Company precedent, where an implied sale of packing material could only be inferred in exceptional cases involving high-value containers.

Issue 2: Levy of Purchase Tax on Purchases Made Before August 11, 1988

The second issue revolved around whether the Tribunal was justified in holding that no purchase tax under section 14 of the BST Act, 1959 would be leviable on purchases made before August 11, 1988, due to an implied sale of packing materials. The applicant argued that the respondents did not produce any contract or document showing the sale of packing materials along with the chemicals, and thus, they were liable for purchase tax for violating form No. 14.

The Tribunal, however, observed that the packing materials had their own identity, were separately classified, and could be reused, satisfying the criteria for an implied sale as per the Supreme Court's judgment in Raj Sheel. The Tribunal noted that the packing materials were used for transport convenience and had substantial value, constituting about four percent of the total export value, which was significant enough to infer an implied sale. Consequently, the Tribunal held that the respondents were not liable for purchase tax on purchases made before August 11, 1988, as there was no contravention of form No. 14.

Conclusion:

The High Court upheld the Tribunal's decision, affirming that the Tribunal rightly did not rely on the Dhariwal Bottle Trading Company judgment and correctly inferred an implied sale of packing materials based on the facts and circumstances of the case. The High Court answered both questions in favor of the respondents and against the applicant, concluding that the Tribunal's findings were justified and supported by the evidence and relevant legal principles. The reference was disposed of, and the court appreciated the assistance provided by the amicus curiae.

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