TMI Blog2006 (1) TMI 244X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------------------------------ The judgment of the Court was delivered by ASHOK BHAN, J. This appeal by grant of special leave is directed against the judgment and final order dated September 8, 2000 passed by the High Court of judicature of Andhra Pradesh at Hyderabad dismissing the Writ Petition No. 19304 of 1996 filed by the appellants. In the aforesaid writ petition the appellants had challenged the constitutional validity of entry 18 of the First Schedule to the A.P. General Sales Tax Act (for short, "the Act") introduced by the A.P.G.S.T. (Amendment) Act, 1996 (Act No. 27 of 1996), on the ground that it is violative of article 14 of the Constitution of India. 2.. The appellants are, inter alia, engaged in the manufacture and sale of cement and have various factories in different locations in India, including a unit in the State of Andhra Pradesh for manufacturing cement. The appellants have their marketing division at Secunderabad from where sales of cement are carried on. It has its warehouses all over the State of Andhra Pradesh. Earlier the State was charging sales tax on the sale of cement at the rate of 16 per cent as notified by the State Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether the packing material has been sold or merely transferred without consideration depends on the contract between the parties. The fact that the packing is of insignificant value in relation to the value of the contents may imply that there was no intention to sell the packing, but where any packing material is of significant value it may imply an intention to sell the packing material. In a case where the packing material is an independent commodity and the packing material as well as the contents are sold independently, the packing material is liable to tax on its own footing." 5.. The deeming provision as introduced by Act No. 11 of 1984 by the Legislature by this interpretation was reduced to mere insignificance. This interpretation put the assessing and appellate authorities to the need of making elaborate enquiries on the question whether there was an agreement express or implied for the sale of packing material and whether any artificial or colourable devices were adopted by the assessee to split up the transaction so as to take the plea that there was a separate contract for the sale of packing material. The State Legislature then introduced section 6-C in a modified f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see that the value of the packing materials is not taxed twice, exercised the power conferred under section 9(1) of the Act and provided for set- off of the tax paid on packing materials. It was provided that the tax levied and collected on packing materials in respect of sale or purchase of such materials inside the State shall be reduced from the tax payable on the packed goods. 10. By virtue of the amendments introduced in the Act and the Schedule the sales tax on cement is now levied at the rate of 16 per cent where the sale price of cement includes the value of packing material and if the cement is sold along with separate sale of packing material for a separate price, sales tax is charged at the rate of 20 per cent. According to the appellants, the same commodity, i.e., the cement cannot be treated and made liable to pay differential duty of tax depending upon how the sale of cement is effected, i.e., by effecting the sale of cement and packing material separately. 11. The appellants have been showing the value of cement and the value of the packing material separately while preparing their bills. The appellants case as set out in para 4 of the affidavit filed in suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Tamil Nadu See [1989] 73 STC 346. (1989) 2 SCC 285 and Vasavadatta Cements v. State of Karnataka See [1996] 101 STC 168. (1996) 2 SCC 88. 13.. The High Court negatived the contentions raised by the appellants and concluded that there was nothing anomalous or incongruous in prescribing the same rate of tax for the packing materials as well as the goods packed irrespective of the fact whether they are charged for and sold separately. There was no invidious discrimination and that the present case was not a case in which species of the genus was picked up for higher taxation without apparent justification. It was held that: "The present case is not a case in which a species of the genus is picked up for higher taxation without apparent justification. The charge of discrimination was upheld in Arya Vaidya Pharmacy's case See [1989] 73 STC 346. (1989) 2 SCC 285, having regard to the inherent nature of the commodity and its similarity with others falling within the same category. In the present case, the rate of tax on cement is made dependant on whether the sale price of cement includes the cost of packing materials. If the packing material cost is shown as an integral part of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eries v. State of Kerala See [1998] 108 STC 598. (1998) 1 SCC 641 in which this Court considered the provisions of sub-sections (5) and (6) of section 5 of the Kerala General Sales Tax Act which according to him are pari materia with section 6-C of the Andhra Pradesh General Sales Tax Act introduced by Act No. 22 of 1995. 15.. In Twyford Tea Co. Ltd. v. State of Kerala (1970) 1 SCC 189, Hidayatullah, J., speaking for the Constitution Bench, spelt out the principles governing the application of article 14 to the taxing statutes. It was held that the State does not have to tax everything in order to tax something. The State enjoys a wide discretion in the matters of taxation and enjoys more freedom for classifying the objects to be taxed and the rates of taxation. The burden for proving discrimination is always heavy on the person who alleges discrimination and heavier still when a taxing statute is under attack. That the State can validly pick and choose one commodity for taxation and the same is not open to attack under article 14 on the ground that the same result must follow when the State picks out one category of goods and subjects it to the taxation. The relevant portions at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal adjustment of diverse elements, permit a larger discretion to the Legislature in the matter of classification, so long it adheres to the fundamental principles underlying the said doctrine. The power of the Legislature to classify is of 'wide range and flexibility' so that it can adjust its system of taxation in all proper and reasonable ways. " 17.. In Ganga Sugar Corporation Ltd. v. State of U.P. See [1980] 45 STC 36. (1980) 1 SCC 223, another decision, the Constitution Bench of this Court observed: "Even so, taxing statutes have enjoyed more judicial indulgence. This Court has uniformly held that classification for taxation and the application of article 14, in that context, must be viewed liberally, not meticulously." 18.. Recently, in State of W.B. v. Kesoram Industries Ltd. See [2004] 2 RC 298. (2004) 10 SCC 201, a Constitution Bench by a majority of 4:1 held that the measure/mode/machinery employed for assessing a tax must not be confused with the nature of the tax. A tax has two elements: first, the person, thing or activity on which the tax is imposed (the subject of tax), and second, the amount of tax. The subject of tax is different from the measure of levy. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome or yield of the land/building is taken merely as a measure of the tax; it does not alter the nature or character of the levy. It still remains a tax on land or building. No one can say that a tax under a particular entry must be levied only in a particular manner. The Legislature is free to adopt such method of levy as it chooses. So long as the essential character of levy is not departed from within the four corners of the particular entry, the manner of levying the tax would not have any vitiating effect; .......... (vi) it is permissible to classify land by reference to its user as a separate unit for the purpose of levy of cess. Tea estate, as a separate category of land, is a valid classification;" It was further observed in para 129, sub-para (3) as under: "(3) The nature of tax levied is different from the measure of tax. While the subject of tax is clear and well defined, the amount of tax is capable of being measured in many ways for the purpose of quantification. Defining the subject of tax is a simple task; devising the measure of taxation is a far more complex exercise and, therefore, the Legislature has to be given much more flexibility in the latter fiel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bottles packed in cardboard cartons. As the assessee charged its customers separately for the liquor and the cartons the Assistant Collector held the cartons to be taxable at 8 per cent under entry 97 to Schedule I of the Kerala General Sales Tax Act, 1963. The Deputy Collector under the Act exercising his revisional jurisdiction under section 35 set aside the Assistant Collector's order and invoking section 5(5) of the Kerala General Sales Tax Act held the cartons to be taxable at the rate the liquor was taxable. The view of the Deputy Commissioner was upheld by the appellate court and the High Court. Before this Court it was contended by the assessee that since the appellants had charged, and the customers paid, for the liquor and cartons separately, in the presence of entry 97 in Schedule I to the Act prescribing a specific rate of tax for cartons, the value of the containers could not be included in the value of the liquor for the purpose of calculating the assessee's turnover. It was further contended that the sales tax under the Kerala General Sales Tax Act being a single point tax and tax having already paid on the cartons by the manufacturers thereof, the cartons could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act prescribing a specific rate of tax for cartons, the value of the containers could not be included in the value of the liquor for the purpose of calculating the assessee's turnover. It was further contended that the sales tax under the Kerala General Sales Tax Act being a single point tax and tax having already paid on the cartons by the manufacturers thereof, the cartons could not be taxed again at the time of the sale of beer. Dismissing the appeal this Court pointed out in para 6 that: "The language of sub-sections (5) and (6) of section 5 is clear and unambiguous. These two sub-sections deal with the method of valuation of packed goods and the rate of tax payable thereon. The rules laid down are: (1) Where goods sold are contained in a container or packed in any packing material, the rate of tax payable on the containers shall be the same as that applicable to the goods contained or packed. (2) This will be the position even if price of the containers or packing materials is charged separately. (3) The turnover of the goods will include the turnover in respect of containers or packing materials in which the goods are contained or packed. (4) The point of levy of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale or purchases of goods contained in any containers or packed in any packing materials is exempt from tax, then, the sale or purchase of such containers or packing materials shall also be exempt from tax." 25.. In Premier Breweries' case See [1998] 108 STC 598; (1998) 1 SCC 641., which is a three-Judge Bench case, the distinction in Raj Steel's case See [1989] 74 STC 379; (1989) 3 SCC 262. as well as in Vasavadatta's case See [1996] 101 STC 168. (1996) 2 SCC 88, which are two-Judge Bench cases, has been pointed out. We are in respectful agreement with the view taken by three-Judge Bench in Premier Breweries' case See [1998] 108 STC 598; (1998) 1 SCC 641., which has interpreted sub-sections (5) and (6) of section 5 of the Kerala General Sales Tax Act, 1963 which is in pari materia with the section 6-C as introduced by the amendment Act 22 of 1995. 26.. In Arya Vaidya Pharmacy v. State of Tamil Nadu See [1989] 73 STC 346. (1989) 2 SCC 285, which is the sheet anchor of the appellants' submission, the facts were: that the appellants were manufacturers of Ayurvedic drugs and medicines, including arishtams and asavas. Arishtams and asavas contain alcohol, which according to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any dealer because the dealer can avail any one of the option available in clauses (a) and (b). If the dealer sells cement along with the packing material and the sale price includes value of packing material he continues to pay tax at the previous rate, i.e., 16 per cent. If the dealer opts to sell the packing material and cement separately he has to pay tax at the higher rate, i.e., 20 per cent on cement only. The dealer is not left without any option. He can exercise one of the two options and pay the tax accordingly. 28.. Moreover, as per G.O. Ms. No. 374 Rev dated April 25, 1987, tax levied in the State on the packing material used for packing the goods shall be reduced from the tax payable by a dealer at the rate applicable to cements under section 6-C on the turnover of sale of such goods and packing material. If the appellants purchased the packing material from any dealer within the State and paid tax at 16 per cent on cement under clause (a) he would be entitled to claim set-off of the tax paid by him on such packing material at the time of its purchase inside the State. The High Court rightly pointed out that the imposition of higher rate of tax in the case falling un ..... X X X X Extracts X X X X X X X X Extracts X X X X
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