1992 (9) TMI 344 - HC - VAT and Sales Tax

Issues Involved:
1. Taxability of packing materials (gunny bags) used for selling exempt goods (salt).
2. Applicability of exemption under the Tamil Nadu General Sales Tax Act to packing materials.
3. Interpretation of Section 8(2-A) of the Central Sales Tax Act in relation to exempt goods and their packing materials.

Detailed Analysis:

1. Taxability of Packing Materials (Gunny Bags) Used for Selling Exempt Goods (Salt):
The primary issue was whether the sale value of gunny bags used for packing and selling salt, which is exempt from tax, could be subjected to tax. The respondents, dealers in salt, argued that since salt is exempt from tax, the gunny bags used for packing should also be exempt. The Tribunal had set aside the tax assessments on the gunny bags, relying on a previous decision that it was not possible to segregate the price of the salt and the gunny bags, hence no tax could be levied on the gunny bags.

The Court, however, disagreed with the Tribunal's view, stating that the exemption granted to salt does not extend to the packing materials. The Court referenced the Full Bench decision in *State of Tamil Nadu v. V.V. Vanniaperumal & Co.* and a Division Bench judgment in *A.R. Manickam Chettiar & Sons v. State of Tamil Nadu*, which held that the value of packing materials (like gunny bags) used for selling exempt goods (like salt) is liable to tax if the price of the packing material is not separately mentioned in the bills.

2. Applicability of Exemption Under the Tamil Nadu General Sales Tax Act to Packing Materials:
The respondents argued that the exemption for salt under the Tamil Nadu General Sales Tax Act should also apply to the gunny bags used for packing the salt. The Court examined the notification issued under Section 17 of the Tamil Nadu General Sales Tax Act, which exempted the sale of salt but did not mention packing materials. The Court cited the precedent set in *Varasuki and Co. v. Province of Madras*, which established that exemptions must be strictly construed and cannot be extended to packing materials unless specifically mentioned.

The Court concluded that the exemption for salt does not extend to gunny bags, and thus, the sale value of gunny bags used for packing salt is taxable.

3. Interpretation of Section 8(2-A) of the Central Sales Tax Act:
The respondents also contended that under Section 8(2-A) of the Central Sales Tax Act, the exemption granted to salt should extend to the gunny bags used for packing it. This section stipulates that if a commodity is exempt from tax under state law, it should also be exempt under the Central Sales Tax Act.

The Court rejected this argument, stating that Section 8(2-A) would only apply if the state exemption explicitly covered the packing materials as well. Since the exemption notification under the Tamil Nadu General Sales Tax Act did not include gunny bags, the benefit of Section 8(2-A) could not be extended to them.

Conclusion:
The Court held that the Tribunal erred in setting aside the tax assessments on the sale value of gunny bags used for packing salt. The orders of the assessing officer, as confirmed by the first appellate authority, were restored. The Court emphasized that exemptions must be strictly construed and cannot be extended to packing materials unless explicitly stated. Consequently, the tax cases were allowed, and the Tribunal's order was set aside.

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