TMI Blog1961 (4) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Krishna Co., Ltd. v. State of Andhra[1956] 7 S.T.C. 26. observed that even if the Madras view in Gannon Dunkerley's case[1954] 5 S.T.C. 216. was taken as correct, it has no bearing on the case before him, as the learned judges in that case had held that the contract was one of labour, and the material had become an integral part of the process; the question whether the transfer of the property in the packing materials is only ancillary to a contract for the use of skill and labour and the performance of work was not considered in Krishna Co.'s case(1). In view of the subsequent Supreme Court judgments, we think it necessary to consider this matter in the light of these decisions. We, therefore, refer these tax revision cases to a Full Bench. In pursuance of the aforesaid order of reference the cases came on for final hearing before the Full Bench: O. Chinnappa Reddy, D. Hanumantha Rao and K. Venkateswara Rao, for the petitioners. The Third Government Pleader, for the respondents. JUDGMENT The Judgment of the Court was delivered by SATYANARAYANA RAJU, J.- These tax revision cases have been referred for the decision of the Full Bench by M. A. Ansari, j., ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the price of the packing materials is liable to be included in the taxable turnover of the assessees as the property in those materials is transferred to the customers for a price and the transaction, so far as the transfer of the packing materials is concerned, is clearly one of sale. It will be convenient at this stage to refer to the relevant provisions of the statute. Under section 53 of the Andhra State Act (XXX of 1953), the laws in force in the territories in the State of Andhra prior to its Constitution, are to continue to be in force even thereafter, and one of those laws is the Madras General Sales Tax Act (Madras Act IX of 1939) (hereinafter referred to as "the Madras Act"). The preamble to the Act states that it is expedient to provide for the levy of a general tax on the sale of goods. Section 2(h) defines "sale" as meaning "every transfer of the property in goods by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration." Section 2(i) defines turnover as the aggregate amount for which goods are either bought by or sold by a dealer, whether for cash or for deferred payment or other valuable consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ingredients of the charging section, read, with the definition, are satisfied. Unless we can hold that the materials, after being packed, have been transformed into some other commodity not covered by the definition of goods, it is not possible to hold that there was no sale of that material." Again in Hanumantha Rao v. State of Andhra [1956] 7 S.T.C. 486. , a Division Bench of the Andhra High Court, consisting of Subba Rao, C.J., and Viswanatha Sastri, J., reached the same conclusion. There, the assessee carried on the business of baling and pressing palmyra fibre. He purchased gunny cloth and iron hoops for the purpose of using them in the baling process. The assessee contended that the transaction did not involve any sale of goods, that the contracts entered into by him with his constituents were works contracts and that the gunny cloth and iron hoops became an integral part of the product entrusted to him for baling and pressing, and that therefore he was not liable to be assessed to sales tax on the value of the gunny bags and iron hoops used by him. The learned Judges held that the packing materials were "goods " and that in the courts of carrying on the business of bal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of goods, to constitute a transaction of sale, there should be an agreement, express or implied, relating to transfer of the goods to be completed by the passing of title in those goods. As pointed out by their Lordships of the Supreme Court in State of Madras v. Gannon Dunkerley Co.[1958] 9 S.T.C. 353., it is of the essence of this concept that both the agreement and the sale should relate to the same subject-matter. Benjamin on Sale, 8th edition, contains an elaborate discussion of the English cases on the subject. At page 355 occurs the following passage: "It follows from this decision Reid v. Macbeth [1904] A.C. 223., that the various rules in the Act as to the passing of the property in goods do not apply, in the absence of a contrary intention, unless the materials are contracted for separation, and not merely as part of the larger corpus which is the subject-matter of the contract. The property in them will Prima facie pass when the property passes in the larger corpus itself." After a discussion of the principles, the learned author has deduced the following proposition: "The principles already discussed have shown that a contract of sale is not constituted merely b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd when the tobacco leaf emerges from the reconditioning chamber, it must be packed in waterproof packing material and stored for the requisite period. Unless the packing is done immediately, the tobacco loses its standardized moisture content, and without the packing, the process is not complete. It is clear that the packing of redried tobacco and its storage for the requisite period is an integral part of the redrying process. It is argued on behalf of the State that even if the supply of materials under the contract cannot be regarded as a sale under the Sale of Goods Act, the contract is nevertheless a composite agreement under which the assessee undertakes to supply material and contribute labour, and that it is open to the State in execution of its tax laws, to split up that agreement into its constituent parts, single out that which relates to supply of materials and to impose tax thereon treating it as a sale. This was indeed the argument advanced before the Supreme court in State of Madras v. Gannon Dunkerley Co.[1958] 9 S.T.C. 353. Their Lordships held that if the agreement between the parties could be split up in the manner suggested by the State, the resultant would ..... X X X X Extracts X X X X X X X X Extracts X X X X
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