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TMI Blog1978 (8) TMI 197X X X X Extracts X X X X X X X X Extracts X X X X ..... inter-State was only copra and there was no sale of gunny bags, which contained the copra. In the circumstances, the purchase tax under section 5A was held to be exigible. On second appeal to the Kerala Sales Tax Appellate Tribunal, the Tribunal held that the packing materials and the gunny bags purchased by the assessee were sold inter-State and, therefore, the turnover in respect of them is eligible for exemption contemplated under clause (c) of section 5A. 3.. The Tribunal posed the question whether there was an express or implied agreement for sale of gunnies in the inter-State transactions. When the containers are of an appreciable value it is possible to infer an implied agreement to pay an extra price for them and the fact that the price of the containers is not fixed separately makes no difference to the assessment of sales tax. The Tribunal said: "The value of containers involved in these transactions is admittedly substantial and hence it is possible to infer an implied agreement for the sale of these gunnies." (underlining* ours) The Tribunal then referred to the decisions of this Court in A. Srinivasa Pai v. State of Kerala[1975] 36 S.T.C. 482. and Deputy Commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acking materials and gunnies purchased by the assessee have been sold inter-State and, if that be so, the turnover is eligible for the exemption contemplated under clause (c) of section 5A. Therefore, the turnover of Rs. 2,07,780.53 in question was directed to be excluded from the taxable turnover of the assessee for the year under appeal. 6.. The questions of law raised in the revision petition are as follows: "(A) Was the Appellate Tribunal justified in law in holding 'that the value of packing materials and gunnies is substantial and not insignificant and that there is an implied agreement for sale of them', on the basis of the ratio of the decisions reported in Srinivasa Pal v. State of Kerala(2) and Deputy Commissioner of Agricultural Income-tax and Sales Tax v. Balakrishna Pillai(3)? Are the said findings based on any material? (B) Is the finding and conclusion of the Appellate Tribunal to hold that the packing materials and gunnies purchased by the assessees have been sold inter-State, valid and justified in law in view of the decisions of this honourable Court reported in Tushar Trading Co. v. State of Kerala[1971] 28 S.T.C. 214. and Mookken Devassy Ouseph's case(4)? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T.C. 1. The appellant in that case was the plaintiff in a suit filed against the Government for a declaration that the sales tax collected from him on the turnover calculated on the price of the gunny bags containing the salt sold by him (excluding the price of the salt which was exempted from sales tax) was illegally collected and ought to be refunded to him as salt could not be sold except after being put into gunny bags and he had merely purchased the gunny bags from dealers for the sake of filling them with salt and had included only the cost price of the gunny bags in the ultimate price charged by him for the salt bags. A Division Bench of the Madras High Court said that exemption of salt from sales tax cannot be relied on for the purpose of claiming exemption for the gunny bags in which salt is packed on the ground that salt cannot be sold except after being put into gunny bags. Any exemption of an article must be strictly construed and confined to the exemption itself and not extended. It might be noted that in that case the plaintiff proceeded on the basis that he bought the gunny bags and sold them (see page 2 of the Reports). Therefore, this case may not be of any help ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. But where the container itself is priced and sold and its price is added to the price of the commodity it contains, there can be no manner of doubt that there is a sale of the container. In such event, unless there be an exemption of the container along with the commodity it contains, the tax cannot be avoided." 13.. Another decision referred to was that of a Division Bench of the Punjab High Court in Krishna Roller Flour Mills v. State of Punjab[1958] 9 S.T.C. 439.The facts of the case were: The petitioners were appointed authorised wholesale distributors under the East Punjab Rationing Order, 1948. They undertook the work as authorised millers for the milling of foodgrains and distribution of atta within a certain rationed area on certain terms and conditions which were embodied in a written agreement. They had to purchase wheat, gram and barley from Government at a fixed price, transport the same to mill premises, clean the same, mill the grain into wholesale atta, bag it into standard weight bags and sell the bags to authorised depot-holders at a certain rate. Under the agreement they had to pay the price of gunny bags to Government at the rate fixed by Government from ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forbearance of one party or the promise thereof is the price for which the promise of the other is bought': Dunlop v. Selfridge[1915] A.C. 847 at 855 (H.L.). The State Government in the present case offered to appoint the petitioners as authorised wholesale distributors on certain terms and conditions and the petitioners accepted those terms. According to clause 8 of the agreement, the petitioners were to pay the price of the bags to Government at the rate fixed by Government from time to time and were to transfer these bags to depot-holders at the same price. The execution of this term of the agreement involved the petitioners in two separate and distinct transactions-(a) a purchase by the petitioners of a number of bags from Government at a fixed price, and (b) a sale by the petitioners of a number of bags to depot-holders at the same price. On the completion of the first transaction the petitioners acquired the rights of ownership over the bags in question and on the completion of the second transaction they divested themselves of those rights for a monetary consideration and vested them in depot-holders. The second transaction involved both the elements mentioned in the defin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hing extra for such wrapping or packing. Unless there be a 'sale' of the packing materials, tax will not be attracted. Where the assessee was assessed to sales tax on the value of packing materials used for sending handloom cloth (an exempted commodity) to parties outside the State, but the assessee declared that it had not charged its consignees for the packing of goods consigned to them, and that its assertion that the packing materials had no resale value was not challenged by the department, which only stated that the price of the cloth must in the circumstances be deemed to include the price of its 'containers' as well: Held, that the inference of the sales tax authorities that the price of cloth sold included the cost of its packing was not based on any evidence, nor was it warranted by the circumstances of the case." 16.. In a case, which came before the Madhya Pradesh High Court, Patel Volkart Private Ltd. v. Commissioner of Sales Tax, M.P.[1972] 29 S.T.C. 515., the assessees were dealers carrying on the business of purchase and sale of cotton bales. Under the agreement of sale of cotton bales by the assessees to various mills it was obligatory on the assessees' part to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terials were used. In the present case, it was said, the packing materials, namely, cardboard and dealwood boxes, were the minimum materials necessary to give or send the cigarettes to the customers and that it would not have been possibly the intention of the seller to sell or the buyer to buy the said materials which had no intrinsic worth apart from the cigarettes they contained." In considering these questions the Supreme Court had made the following significant observations at pages 628 and 629: "In the instant case, it is not disputed that there were no express contracts of sale of the packing materials between the assessee and its customers. On the facts, could such contracts be inferred? The authority concerned should ask and answer the question whether the parties in the instant case, having regard to the circumstances of the case, intended to sell or buy the packing materials, or whether the subject-matter of the contracts of sale was only the cigarettes and that the packing materials did not form part of the bargain at all, but were used by the seller as a convenient and cheap vehicle of transport. He may also have to consider the question whether, when a trader in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pened in this case. The Commercial Tax Officer invoked a fiction; the Assistant Commissioner of Commercial Taxes relied upon the doctrine of 'finished product'; the Appellate Tribunal relied upon surmises; and the High Court, on the principle of implied agreement. But, none has tackled the real question. The burden lies upon the Commercial Tax Officer to prove that a turnover is liable to tax. No doubt he can ask the assessee to produce the relevant material; and if he does not produce the same, he may draw adverse inference against him. But, he must decide the crucial question whether the packing materials were subject of the agreement of sale, express or implied. To ascertain the said fact he can rely upon oral statements, accounts and other documents, personal enquiry and other relevant circumstances such as the nature and the purpose of the packing materials used." At page 631: "The decisions relevant to sales turn upon the facts of each case: see Mohanlal Jogani Rice and Atta Mills v. State of Assam[1953] 4 S.T.C. 129. , Indian Leaf Tobacco Development Co. Ltd. v. State of Madras[1954] 5 S.T.C. 354., Hanumantha Rao v. State of Andhra[1956] 7 S.T.C. 486., Varasuki and Co. v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acking material between the assessees and their customer. The value of the packing material as compared to the value of the contents of the packet was insignificant. In the circumstances, an agreement to sell packing material independently of chewing tobacco cannot under the general law be implied. 19.. Now we would consider four decisions of this Court: (1) Tushar Trading Co. v. State of Kerala[1971] 28 S.T.C. 214., (2) Srinivasa Pai v. State of Kerala[1975] 36 S.T.C. 482., (3) Deputy Commissioner of Agricultural Income-tax and Sales Tax v. Balakrishna Pillai[1975] 36 S.T.C. 487. and (4) Mookken Devassy Ouseph Sons v. State of Kerala[1975] 36 S.T.C. 501. 20.. In the first of these cases, Tushar Trading Co. v. State of Kerala[1971] 28 S.T.C. 214., the assessee, a dealer in coconuts, pepper, copra, etc., was assessed to sales tax under the Central Sales Tax Act, 1956, at 10 per cent on the turnover representing the value of empty gunnies, mat, coir, etc., used for transporting copra, as according to the Tribunal, in the invoices drawn in favour of the purchasers the price of packing materials had been separately shown and the declarations in form C were not furnished in supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame. The decisions that have followed, as we understand them, have applied the principles in practice, but in some of them, one or other of the consideration that should cumulatively enter the reckoning have been overstressed, and exalted to a higher level than the parent decision would warrant. 23.. Thus we do not think that the making out of a separate bill for the container or its separate itemising in the bill made out, for the goods, or the physical or commercial identity of the container, or its value in proportion to the goods, would, by themselves be decisive of the question. They are only aids to understand the nature of the bargain. Mr. Shenoi, the learned counsel appearing for the assessee, strongly contended that a specific separate fixation of the price of the container in the bill issued for the sale of the goods was conclusive evidence of the sale of the container; and that in the case of what may be called composite sales of the container and the goods together, the substantial, as opposed to the insignificant, value of the container, and its individual and commercial identity, would determine the issue. We do not think that these considerations should have any fu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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