2005 (9) TMI 599 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Exigibility of tax on packing materials (bottles and cartons) under the Andhra Pradesh General Sales Tax Act, 1957.
2. Whether the packing materials should be taxed at the same rates as the contents they house.
3. Validity and interpretation of section 6-C of the Act.
4. Separate sale of packing materials and its tax implications.

Issue-wise Detailed Analysis:

1. Exigibility of Tax on Packing Materials:
The dealers, including distributors, wholesalers, and retailers of liquor and beer, challenged the orders of the Andhra Pradesh Sales Tax Appellate Tribunal and the Commissioner of Commercial Taxes regarding the tax rates on packing materials (bottles and cartons). The primary issue was whether these materials should be taxed at the rates specified in the First Schedule of the Act or at the same rates as the contents they house.

2. Tax Rates for Packing Materials vs. Contents:
The liquor and beer were taxed at 25%, while bottles and cartons were taxed at 9% and 5%, respectively. The State Legislature amended the Act by inserting section 6-C, which deemed the sale of packing materials along with the contents, thereby subjecting the packing materials to the same tax rates as the contents. This amendment was upheld as constitutional by the apex Court in Raj Sheel v. State of Andhra Pradesh [1989] 74 STC 379, but it was noted that the nature of transactions could vary, and the true nature of each transaction had to be ascertained by the assessing authority.

3. Validity and Interpretation of Section 6-C:
Section 6-C was challenged but upheld by the division Bench and the apex Court. The provision was deemed clarificatory, indicating that the sale of packing materials along with the goods was incidental and unavoidable. The apex Court emphasized that the nature of the transaction (whether the packing material was sold or merely transferred without consideration) depended on the contract between the parties.

4. Separate Sale of Packing Materials:
The dealers argued that there were separate sales of packing materials, evident from invoices. They contended that the packing materials should be taxed as per the entries in the First Schedule. The learned Government Pleader countered that the separate sale was shown only to benefit from a lower tax rate, and the actual tax collected was at the higher rate applicable to the contents. The authorities found that the dealers did not prove separate agreements for the sale of packing materials and often charged a single amount for both contents and packing materials.

Findings and Conclusion:
The court analyzed various judgments and statutory provisions. It was established that the issue had to be decided based on the facts of each case. The authorities consistently found that there was no separate sale of packing materials. The dealers' claims of separate sales were often not supported by evidence. The court concluded that the turnover relating to bottles should be taxed at the same rate as the contents, while cartons, being secondary packing material, should be taxed at the rates provided in the First Schedule.

Disposition:
The special appeals and tax revision cases were disposed of, denying relief to the dealers regarding bottles but granting relief for cartons. The writ petition was dismissed as the tax revision cases had been resolved.