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TMI Blog2006 (1) TMI 244X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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, which included the value of the packing material used for packing cement. The value of packing material is also charged to sales tax on the total sales turnover. As far as second sale is concerned sales tax is not paid on the value of packing materials, as sales tax is leviable only on the first sale of packing materials. Section 6-C was introduced by the Andhra Pradesh General Sales Tax (Amendment) Act (No. 11 of 1984) which reads as under: "6-C. Levy of tax on packing materials.-Notwithstanding anything in sections 5 and 6- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 form. The following provision was substituted by the Andhra Pradesh Amending Act 22 of 1995 with effect from April 1, 1995. The amended section 6-C reads as follows: "6-C. Levy of tax on packing material. - Notwithstanding any- thing contained in section 5, section 5-F, section 6 and section 6-A, the rate of tax on packing material sold with the goods shall be the same as that of the goods packed or filled, whether or not there is separate sale or agreement for sale for the packing material and the goods packed or filled." 6. In order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 support of the writ petition reads as under: "The petitioner-company has been showing the value of cement and the value of packing material separately while preparing the bills. Copy of the bills are filed herewith. The purpose of showing separately the value of cement and the packing material which is used for packing cement is only for the purpose of claiming exemption for the packing material as sales tax is not levied on second sales of packing material as per the Act. By virtue of the Ordinance cement for which tax is levied is 16 per cent and when cement is sold with packed material it is 16 per cent when billed along with cement, and if the very same cement is billed separately, i.e., cement and packing mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the price at which the cement was sold, it would attract lesser rate of tax. However, if the packing material cost is excluded from the sale value of the cement, the turnover will be less and in such an event, the Legislature thought it fit to prescribe a higher rate of tax. It is left to the dealer to choose one of the courses. Different rates of tax for the same commodity is prescribed depending on whether the price includes packing material cost, obviously with a view to check tax avoidance. Such was not the situation in Arya Vaidya Pharmacy's case See [1989] 73 STC 346. (1989) 2 SCC 285." 14.. Relying heavily on the decision in Arya Vaidya Pharmacy's case See [1989] 73 STC 346. (1989) 2 SCC 285. Mr. Rajiv Shakdh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 para 15 of this judgment read as under: "15. We may now state the principles on which the present case must be decided. These principles have been stated earlier but are often ignored when the question of the application of article 14 arises. One principle on which our courts (as indeed the Supreme Court in the United States) have always acted, is nowhere better stated than by Willis in his 'Constitutional Law' page 587. This is how he put it: 'A State does not have to tax everything in order to tax something. It is allowed to pick and choose districts, objects, persons, methods and even rates for taxation if it does so reasonably...... The Supreme Court has been practical and has permitted a very wide latitude in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " 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. The amount of tax may be measured in many ways but the distinction between the subject-matter of a tax and the standard by which the amount of tax is measured must not be lost sight of. 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. Devising the measure of taxation is a far more complex exercise than defining the subject of tax and therefore the Legislature has to be given much more flexibility for devising the measure of taxation. It was observed in para 33 as under: "We now proceed to enter a deeper dimension in the field of tax legislation by considering the problem of devising the measure of taxation. This aspect has been dealt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 field. The mechanism and method chosen by Legislature for quantification of a tax is not decisive of the nature of the tax though it may constitute one relevant factor out of many for throwing light on determining the general character of the tax." 19.. In State of U.P. v. Sukhpal Singh Bal See [2006] 6 RC 22. (2005) 7 SCALE 106, this Court has laid down that the courts must show judicial restraint while considering the scope of economic legislation as well as tax legislation and unless the provision is manifestly unjust or glaringly unconstitutional the same should not be interfered with. There is always a presumption in favour of the constitutional validity of any legislation unless the same is set aside for breach of the provisions of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontainer 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 the tax on the containers or the packing that the turnover of the goods will include the turnover in respect of the packing materials or the containers. The containers or the packing materials will be taxed at the same point and at the same rate at which the goods are to be taxed. This rule will apply 'whether the price of the containers or the packing materials is charged separately or not'. Therefore, even in a case where the containers are separately sold, the turnover of the goods will include the turnover of the containers and the appropriate rate of tax on such turnover will be the rate of tax payable on the goods." 23.. Referring to the decision in Vasavadatta Cements v. State of Karnataka See [1996] 101 STC 168. (1996) 2 SCC 88, wherein this C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee was essential for the effective and easy absorption of the medicine by the human system and also because it acted as a preservative. While all other patent or proprietary medicinal preparations belonging to the different systems of medicines were taxed at the rate of 7 per cent only, arishtams prepared under the ayurvedic system were made subject to a levy of 30 per cent. The appellants filed the writ petitions in the High Court of Madras challenging the levy at 30 per cent on arishtams and asavas, being violative of article 14 as well as article 19(1)(g) of the Constitution of India. The High Court dismissed the writ petition by observing that the imposition of the rate of 30 per cent on the sale of arishtams and asavas must be regarded princip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 under clause (b) of entry 18 is to check the tax avoidance measures which are said to be rampant. That contrary to the normal business practices and modalities of sale of cement, the manufacturers had started bifurcating the price of cement and packing material to make it to appear that there was separate sale of each of them, so that they need not have to pay the higher tax on the component of packing material. It is common knowledge that the cement, barring some bulk supplies, is ordinarily sold in packed condition, i.e., either gunny bags or HDPE bags. Going by ordinary business practice and common sense, one does not think of purchasing the cement and bag separately. The agreement and the bargain would be for sale and purchase of cement in packed conditio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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