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TMI Blog2006 (4) TMI 467X X X X Extracts X X X X X X X X Extracts X X X X ..... transport and no price whatsoever is charged for the said containers, as in such supply the containers are supplied free of cost. The wheat and wheat products are items exempted from payment of sales tax vide entry 6A of Schedule I attached to the Assam General Sales Tax Act, 1993 (in short, called "the Act 1993"). Earlier tax was intended to be levied on the containers or packing materials by the provision made under Explanation 2 to section 2(34) of "the Act 1993". Explanation 2 of sub-clause (34) of section 2 of the Act 1993 is quoted below: "Explanation 2. Where any goods are purchased or sold packed in containers or other packing materials of value which is small in comparison with the value of such goods or such packing is essential or customary for the purchase or sale of such goods, then, notwithstanding any agreement to the contrary such containers or other packing materials shall be deemed to have been purchased or sold with such goods and their value, whether charged separately or not, shall be included in the purchase or sale price of such goods and charged to tax at the rate, if any, applicable to such goods." Earlier the words "and charged to tax at the rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levied on the sale value (expressed or implied) of the containers used in selling some exempted goods, which has to be determined in the prescribed manner. (ii) Sub-rule (2) of rule 6A provides that where no accounts regarding sale of containers are maintained, or such sales are shown at a price lower than the market price or supply of containers are shown as free of cost, the sale price shall be determined at 1 per cent of the sale value of the exempted goods sold. In other words, sub-rule (2) of "rule 6A" has provided for levy of sales tax on the supply of containers even if the same have been supplied free of cost. The aforesaid sub-rule (2) of rule 6A therefore goes contrary to and is beyond the scope of section 7(8) of "the Act 1993" and thereby the said provision of "rule 6A(2)" is liable to be declared ultra vires and consequently to be struck down. Section 2(33) is reproduced below for the convenience to understand the meaning of sale: "2(33) 'Sale' with all the grammatical variations and cognate expressions means any transfer of property in goods by any person for cash, deferred payment or other valuable consideration, and includes (i) any transfer otherwise than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h sale of tax-free goods (exempted goods). (viii) The provisions of rule 6A(2) have to be construed and interpreted strictly and in case of any ambiguity the benefit has to be given to the assessee or the tax-payer. Learned counsel for the petitioner has referred and has placed reliance on the following cases: (i) Ahmedabad Urban Development Authority v. Sharadkumar Jayantikumar Pasawalla AIR 1992 SC 2038. (ii) Agricultural Market Committee v. Shalimar Chemical Works Ltd. AIR 1997 SC 2502. (iii) State of Kerala v. K.M. Cheria Abdulla and Company [1965] 16 STC 875 (SC); AIR 1965 SC 1585. (iv) Maharashtra State Board of Secondary and Higher Secondary Education v. Paritosh Bhupesh Kurmarsheth AIR 1984 SC 1543. (v) Polestar Electronic (Pvt.) Ltd. v. Additional Commissioner, Sales Tax [1978] 41 STC 409 (SC); [1978] 1 SCC 636. (vi) Smt. Tarulata Shyam v. Commissioner of Income-tax [1977] 108 ITR 345 (SC); [1977] 3 SCC 305. (vii) Murarilal Mahabir Prasad v. B.R. Vad [1977] 37 STC 77 (SC); [1975] 2 SCC 736. (viii) State of Madras v. Gannon Dunkerley Co. (Madras) Ltd. [1958] 9 STC 353 (SC). (ix) Hyderabad Deccan Cigarette Factory v. State of Andhra Pradesh [1966] 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereof should not be invalid under article 13 for repugnancy to those freedoms which are guaranteed by Part III of the Constitution which are relevant to the subject-matter of the law." According to the respondents/State, the State Legislature without any ambiguity has conferred power under section 7(8) of "the Act 1993" empowering the executive to levy tax on sale value (express or implied) of containers used in selling such exempted goods. In Jamana Flour Oil Mill (P.) Ltd. v. State of Bihar [1987] 65 STC 462 (SC); [1987] 3 SCC 404, the Supreme Court has an occasion to consider the levy of tax on packing material or containers when the wheat product was being sold in gunny bags and price of gunny bags was included in the consolidated rates of price charged by dealer for wheat products under implied agreement of sale of gunny bags then transfer of gunny bags impliedly was treated to be covered by contract of sale of wheat products and different rate of tax on sale turnover of the gunny bags was held to be leviable. The Supreme Court has also noted in paragraph 3 (at page 463 of STC) as extracted hereinbelow: "3. The dealer filed a revision before the Tribunal and conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terial is an independent transaction will depend upon several factors, some of them being: 1.. The packing material is a commodity having its own identity and is separately classified in the Schedule; 2.. There is no change, chemical or physical, in the packing either at the time of packing or at the time of using the content; 3.. The packing is capable of being reused after the contents have been consumed; 4.. The packing is used for convenience of transport and the quantity of the goods as such is not dependent on packing; 5.. The mere fact that the consideration for the packing is merged with the consideration for the product would not make the sale of packing an integrated part of the sale of the product." ". . . In every case, the assessing authority is obliged to ascertain the true nature and character of the transaction upon a consideration of all the facts and circumstances pertaining to the transaction. That the problem almost always requires factual investigation into the nature and ingredients of the transaction. . ." Reliance has been placed on Premier Breweries v. State of Kerala [1998] 108 STC 598 (SC); [1998] 1 SCC 641 wherein the Supreme Court has he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beer usually was not delivered in cartons even in cases of bulk sales. The argument based on secondary packing is misconceived." According to Mr. Chowdhury, learned Additional Advocate-General, in none of the present group of writ petitions assessment order has been challenged as the sales tax or the assessing authorities have to arrive at a definite finding on the crucial and important question whether the packing materials were subject of the agreement of sale between the assessee and its customers as the same was a pure question of fact depending upon the nature of goods sold and the nature of the packing materials and the purpose for which the said materials were used. Relying upon [1966] 17 STC 624 (SC) (Hyderabad Deccan Cigarette Factory v. State of Andhra Pradesh), it has been urged that this court cannot appreciate the validity and applicability of rule 6A(2) unless the assessment order is challenged separately. In Hyderabad Deccan Cigarette Factory [1966] 17 STC 624 (SC), by a notification issued by the Andhra Pradesh State Government, sales or purchases of tobacco and all its products were exempted from sales tax. The department sought to assess the appellant, a manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a v. Sudhansu Sekhar Misra AIR 1968 SC 647, it is the decision of the assessing authority which shall be material to test the validity of rule 6A(2) as observed below in Sudhansu Sekhar Misra's case AIR 1968 SC 647: "A decision is only an authority for what it actually decides. What is of the essence in a decision is its ratio and not every observation found therein nor what logically follows from the various observations made in it." However, Mr. G.N. Sahewalla, learned Senior Counsel appearing in the Writ Petition (C) No. 2173 of 2002 has emphatically controverted the above by saying that assessment order has specifically been challenged in the said continuous writ petition. Therefore, the contention for and on behalf of the State that the assessment order has not been challenged has become redundant. In Ahmedabad Urban Development Authority AIR 1992 SC 2038, the question came regarding validity of Regulation levying development fees in reference to section 91(1)(a) and section 119(2)(c) of the Gujarat Town Planning and Urban Development Act, 1976 where necessity had arisen to augment the revenue for development work and to create fund otherwise by way of rents, loans or ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her body of its choice but the Legislature should, before delegating, enunciate either expressly or by implication, the policy and the principles for the guidance of the delegates. These principles also apply to taxing statutes. The effect of these principles is that the delegate which has been authorised to make subsidiary Rules and Regulations has to work within the scope of its authority and cannot widen or constrict the scope of the Act or the policy laid down thereunder. It cannot, in the garb of making Rules, legislate on the field covered by the Act and has to restrict itself to the mode of implementation of the policy and purpose of the Act. 27.. Applying the above principles to the instant case, it will be seen that the market fee can be levied under the Act only on the sales and purchase of notified agricultural produce within the notified area. Explanation 1 to section 12 creates a legal fiction and provides that if any notified agricultural produce is taken out of a notified market area, it shall be presumed to have been purchased or sold within such area. The presumption is a rebuttable presumption and can be shown to be not correct. The policy in enacting this pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ultra vires merely on the ground that, in the view of the court, the impugned provisions will not help to serve the object and purpose of the Act. So long as the body entrusted with the task of framing the rules or regulations acts within the scope of the authority conferred on it, in the sense that the rules or regulations made by it have a rational nexus with the object and purpose of the statute, the court should not concern itself with the wisdom or efficaciousness of such rules or regulations. It is exclusively within the province of the Legislature and its delegate to determine, as a matter of policy, how the provisions of the statute can best be implemented and what measures, substantive as well as procedural would have to be incorporated in the rules or regulations for the efficacious achievement of the objects and purposes of the Act. It is not for the court to examine the merits or demerits of such a policy because its scrutiny has to be limited to the question as to whether the impugned regulations fall within the scope of the regulation-making power conferred on the delegate by the statute. Though this legal position is well-established by a long series of decisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Legislature means no more and no less than what it says. It is not permissible to the court to speculate as to what the Legislature must have intended and then to twist or bend the language of the statute to make it accord with the presumed intention of the Legislature. . . It is a well-settled rule of interpretation that in construing a taxing statute 'one must have regard to the strict letter of the law and not merely to the sprit of the statute or the substance of the law'. The oft-quoted words of Rowlett, J., in Cape Brandy Syndicate v. Inland Revenue Commissioners [1921] 1 KB 64, lay down the correct rule of interpretation in case of a fiscal statute: 'In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used'. It is a rule firmly established that 'the words of a taxing Act must never be stretched against a taxpayer'. If the Legislature has failed to clarify its meaning by use of appropriate language, the benefit must go to the tax-payer. Even if there is any doubt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There must be an agreement between the parties for the sale of the very goods in which eventually property passes." In Dhariwal Bottle Trading Company [1995] 99 STC 326, the Bombay High Court has an occasion to deal with the implied sale of packing materials and has observed as below: "An implied sale of packing materials cannot be inferred in all cases, but only in cases where the special facts and circumstances justify such an inference. It is necessary in most cases to pack goods in some material or container for the purpose of transportation, handling, etc., but the seller neither intends to sell nor the purchaser to purchase the packing material. The packing material is used merely as a cheap or convenient mode of transport. No sale of the packing material would be involved in such cases. The fact that the seller had procured the packing materials for a price, or that the value of the containers must have been taken into account while fixing the price of the goods packed therein, or that the used packing material, even as waste product, would have some value howsoever insignificant it might be, is not relevant for deciding whether there is an implied sale of containers or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 996] 1 SCC 108, the interpretation of exemption provision in taxing statute was indicated to be construed strictly. In State of West Bengal v. Kesoram Industries Ltd. [2004] 2 RC 298; [2004] 10 SCC 201, the Supreme Court has observed that the power to tax must be express and the taxing statutes are to be interpreted strictly. The relevant paragraphs (pages 358-359 of RC) are given as below: "104. There is nothing like an implied power to tax. The source of power which does not specifically speak of taxation cannot be so interpreted by expanding its width as to include therein the power to tax by implication or by necessary inference. '. . . There is no such thing as taxation by implication. The burden is always upon the taxing authority to point to the act of assembly which authorises the imposition of the tax claimed.' '105. Justice G.P. Singh in Principles of Statutory Interpretation (Eight Edition, 2001) while dealing with general principles of strict construction of taxation statutes, states: 'A taxing statute is to be strictly construed. The well-established rule in the familiar words of Lord Wensleydale, reaffirmed by Lord Halsbury and Lord Simonds, means: "The subj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te in respect of inter-State trade and commerce (entry 42, List I, Schedule VII) did not carry with it the power to tax the sale of goods in inter-State trade and commerce before the insertion of entry 92-A in List I and such power belonged to the States under entry 54 in List II. Entry 97 in List I also militated against the contention that the power to tax is an incidental power under our Constitution." In Bimal Chandra Banerjee v. State of Madhya Pradesh AIR 1971 SC 517, it was held by the Supreme Court that the tax by rule or regulation cannot be imposed unless specially authorised by the State. It was observed in Bimal Chandra Banerjee AIR 1971 SC 517 as follows: "No tax can be imposed by any bye-law or rule or regulation unless the statute under which the subordinate legislation is made specially authorises the imposition even if it is assumed that the power to tax can be delegated to the executive. The basis of the statutory power conferred by the statute cannot be transgressed by the rule-making authority. A rule-making authority has no plenary power. It has to act within the limits of the power granted to it." I have heard the learned counsel for the parties and I ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppears to be no controversy in reference to the applicability of rule 6A(1) more specifically, when sale price of containers of exempted goods are separately shown in the books of account. But the real exercise has to be made in determining the sale price in respect of the transaction or in respect of the cases which are reflected or contemplated under rule 6A(2) of "rules 1993". By plain reading of "rule 6A(2)" it appears that in following three conditions sale price shall have to be determined at one per cent of the sale value of the exempted goods. (i) Where no accounts regarding sale of containers are maintained by the assessee, or, (ii) When assessee has shown its sale price lower than the market price, or, (iii) Supply of containers are shown as free of cost. In all the above three conditions question arises for determining the real sale value of containers or packing materials used in sale or supply of exempted goods when clear position has not been indicated by dealerassessee, then there is scope of making best judgment assessment by the assessing officer. All the above three conditions are of one pattern or of one category where the books of account may be scru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r without entering into agreement then the sale price cannot be determined at one per cent taking the sale value of exempted goods. So, if the dealer has shown supply or sale of containers free of cost then the State Government or its officials or the assessing authority including the appellate authority or the assessing officer in reference to "rule 6A(2)" may make an inquiry, scrutinise, analyse the transaction or the entries in the books of account for finding real nature of sale or supply of containers and if it is found there is no supply or sale of containers then sale price of containers cannot be determined at one per cent of sale value of the exempted goods. Therefore, in the light of the law laid down by the Supreme Court in 20th Century Finance Corporation Ltd. v. State of Maharashtra [2000] 119 STC 182; [2000] 6 SCC 12 the provision of "rule 6A(2)" has to be read properly and not in consonance with the submissions of the petitioner that in all cases if the containers are disclosed to have been sold or supplied free of cost even then the sale price shall not be determined at one per cent of the sale value of the exempted sold goods. The proper reading of the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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