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TMI Blog1976 (7) TMI 155X X X X Extracts X X X X X X X X Extracts X X X X ..... the respective customers. Since the respondents had not maintained separate accounts in respect of the alleged sale of hessian cloth and hoop iron, the assessing authority arrived at the sale price of these materials for the two years in question by adding 10 per cent profit to the cost price and assessed the same to sales tax. The objection of the respondents to the assessment of the said amounts on the ground that there was no sale of hessian cloth and hoop iron by the respondents to their customers was overruled by the assessing authority. The appeals preferred by the respondents to the appellate authority proved unsuccessful. However, when the respondents preferred second appeals to the Sales Tax Appellate Tribunal, the Tribunal by its impugned orders allowed the appeals holding that the contract entered into by the respondents with their customers was only a works contract or labour contract which did not include any implied agreement to sell hessian cloth or hoop iron and that, therefore, the amounts in question could not be assessed to sales tax. It is the correctness of this conclusion of the Tribunal that is challenged in these revision petitions before this court. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unbleached yarn and cloth manufactured by their mills for the purpose of being bleached or dyed, calendered, pressed and folded. The assessee after doing these works packed and delivered back the goods to the customer mills. The packing materials used, namely, brown kraft papers, hoop iron, hessian cloth, jute twine, palm mats, etc., were purchased by the assessee. In making the charges for services, the assessee included in the bill the charge for packing and the packing materials, though they were not separately shown. In that context a question arose, whether there had been a sale of the packing materials or not. This court pointed out: "The question whether there has been a sale of the material would depend on the contract between the parties, expressed or implied. A mere contract of service, although a transfer of a movable property is involved therein, cannot by itself imply a sale. For example, in the case of a bleaching and dyeing contract, the use of the materials utilised for the purpose of bleaching or dyeing though charged for even at a profit, would not amount to a sale, for the transfer of materials would be necessary or incidental to the contract of service. But, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Such an agreement could be express or implied. Where the main contract was one of sale of goods as packed, such an agreement to sell the packing materials could, having regard to the nature of the contract, be readily implied; but where the main contract was merely one of service, the fact that in the performance of such service packing materials are used and charged for, would not lead to a necessary inference that a sale of the materials was intended. In such a case, the onus would be on the taxing authority to prove that there was an agreement to sell the packing materials and a sale by the passing of property therein." Thus, if the principle laid down by the above decision of this court is applied to the present case, it will clearly show that there was no sale of the packing materials and that therefore with reference to the notional sale value of those packing materials no tax could be levied. To a similar effect is the decision of this court in State of Tamil Nadu v. Venkateswara Roller Flour Mills and Metal Industries[1974] 33 S.T.C. 369. In that case also the assessees were owners of flour mills and they were dealers and manufacturers of wheat products. The assessees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that the charges are fixed at a flat rate per ton for the wheat products supplied without reference to the nature of the gunnies used also shows that the value of the gunny bags used by the assessees for packing the wheat products has not even been contemplated by the parties. In the face of the various provisions in the agreement, it is not possible for us to infer an implied contract for sale of gunny bags, either old or new, by the assessees to the Food Corporation of India." It should be noticed that in the case of United Bleachers Ltd. v. State of Madras[1960] 11 S.T.C. 278., the assessee had actually included in the bill the charges for packing and packing materials, though they were not separately shown. But in the case of State of Tamil Nadu v. Venkateswara Roller Flour Mills and Metal Industries[1974] 33 S.T.C. 369., there was nothing in the bills to show that the packing materials were charged by the assessees. Notwithstanding this difference in the two cases, this court came to the conclusion that there was no sale of packing materials because there was no contract, express or implied, for the sale of those packing materials. This court also pointed out that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o overseas. Therefore a contract for pressing cotton and delivery of the compressed cotton in a certain kind of packing is really divisible into two distinct contracts: (i) one of labour and work, namely, the pressing of the cotton, and (ii) the other of packing the compressed cotton which is partly of material and of labour. In the 'packing part' of the contract, the substance of the agreement is not the skill and labour but it is the material." The Full Bench decision of the High Court of Madhya Pradesh split up the contract into two, one as a contract of labour and work and the other as a contract for packing. With great respect to the learned Judges, we are unable to accept their reasoning. As a matter of fact, the learned Judges themselves have pointed out that the packing material is for convenience of transport and to prevent the bales from being "unloosened" during the course of handling. The ginned cotton has to be handled even for the purpose of its being removed from the factory to the adjoining mills and it is not as if the removal of the cotton to adjoining mills does not require handling and that handling does not require packing. Therefore the very contract for gin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rette Factory v. State of A.P.[1966] 17 S.T.C. 624 (S.C.). Under these circumstances, we have to consider the present case from the point of view of the nature of the contract, namely, whether it is principally a works contract or a contract for purchase of any article. There can be no doubt whatever that in this case the contract was principally a works contract and as incidental to the execution of the works contract, the assessee-respondents had used hoop iron and hessian cloth as packing materials. As we have pointed out already, and it is not disputed before us that it is for the department to show that in such a case there is an implied contract for the sale of the packing materials, it being admitted that there was no express contract. The only question then for consideration is, whether there is any such implied contract in the present case. As we have pointed out already, the Appellate Assistant Commissioner of Commercial Taxes inferred the existence of an implied contract on his finding that the value of hessian cloth and hoop iron has been charged for by the respondents herein. As against this, the Tribunal after having perused the bills came to the conclusion th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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