TMI Blog1997 (1) TMI 495X X X X Extracts X X X X X X X X Extracts X X X X ..... ties, we shall refer to the facts mentioned in the affidavit accompanying Writ Petition No. 18273 of 1995. The first petitioner is a company registered under the Companies Act and the second petitioner is its shareholder. The first petitionercompany was incorporated for manufacture and sale of cement which, at that time, was fully controlled by the Cement Control Order, 1967. Under the said order the price of the cement and the gunny bags/HDPE woven sacks (for short, "containers") was separately fixed and accordingly tax was being levied separately under items 18, 157 and 188 of the First Schedule. After the sale of the cement was decontrolled, the authorities continued to levy sales tax in the same manner. The goods enumerated in the First Schedule including cement and the containers were subjected to single point tax. By Act 11 of 1984, section 6-C was inserted in the Act with effect from July 8, 1983. The constitutional validity of section 6-C was questioned in this Court in a batch of writ petitions (known as Raj Sheel case); in Raj Sheel v. State of Andhra Pradesh [1987] 64 STC 398 the validity of section 6-C was upheld and observing that the said provision was only clarific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dule will be applicable. It is added that the tax paid on containers under the impugned provision attracts the provision of set-off contained in G.O. Ms. No. 374, Revenue, dated April 25, 1987 and from out of the tax payable at the rate of the contents the tax already levied and paid on the containers, will be deducted. It is stated that the rate of tax on the gunny bags under item 157 is 9 per cent whereas the rate of HDPE/PP woven sacks is at the rate of 4 per cent and that tax paid at the above rate on the containers is allowed to be deducted from the tax payable on them at the rate of the contents. It is stated that the impugned provision is not violative of any of the provisions of the Constitution. The classification of containers into two categories, sold as such and sold with contents, is reasonable classification having nexus to the object of levying tax. When the contents are packed in the gunnies or HDPE woven sacks they got merged with the contents even though they are shown as having been sold separately and in such a case the impugned provision will be attracted and the containers are taxed at the rate of the contents. 4.. Mr. A.K. Ganguli, the learned Senior Counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Schedule gunnies are taxable at the rate of 5 paise in the rupee with effect from July 1, 1985 (with effect from April 1, 1995 those goods are taxable at the rate of 9 paise in the rupee); under item 188 of the First Schedule high density polythene polypropylene (HDPE/PP) woven sacks were taxable at the rate of 1 paise in the rupee with effect from June 15, 1987 (with effect from April 1, 1995 those goods are taxable at the rate of 4 paise in the rupee). Before insertion of section 6-C by Act 11 of 1984 with effect from July 8, 1983, cement was being taxed under item 18 and gunnies were taxed under item 157 at the then respective prevalent rate. Entry 188 was added with effect from June 15, 1987 and HDPE/ PP woven sacks were being taxed at the rate applicable to them. After the insertion of section 6-C, gunny bags, HDPE/PP woven sacks, in which cement was packed, were sought to be taxed under item 18 at the rate applicable to cement. The constitutional validity of section 6-C was questioned in a batch of writ petitions in this Court. In Raj Sheel's case [1987] 64 STC 398 the Division Bench of this Court which considered the question of taxability of containers, gunnies and bottle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e containers at the rate of tax applicable to the sale of the goods (contents) themselves. Observing that that section could at best be regarded as a provision by way of clarification of an existing legal situation, it was explained that where the transaction was one of sale of goods only, all that could be taxed was also of the goods and the rate to be applied must be the rate as in the case of the goods and that the price of the goods was determined upon consideration of every component including the value of the packing material (containers) but nonetheless price was the price of the goods; unamended section 6-C laid down that upon analysis of the components of the sale price of the goods the rate of tax which would apply to the container component would be the rate applicable to the goods themselves and that was for the simple reason that it was the price of the goods alone which constituted the transaction between the dealer and the purchaser as irrespective of the component of the sale price which the purchaser was paying the parties understood that the price paid was that of the goods. Rejecting the contention of the appellant-dealer that the rate applicable to the packing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other words, where the container housing the contents is sold separately from the contents or is governed by a separate agreement for sale, independent of the sale of the contents, such sale or agreement will be disregarded and the rate of tax on such container will be the same as the rate of tax applicable to the contents. To discern the true import of the impugned provision it will be useful to advert to the aforementioned three modes of the sale of the contents and the containers referred to by the Supreme Court in Raj Sheel's case [1989] 74 STC 379. They are transactions of sale consisting of: (i) a sale of the product and a separate sale of the container housing the property with respective sale consideration for the product and the container separately; (ii) a sale of the product and the sale of the container both being conceived of an integrated single sale transaction; and (iii) a sale of the product with the transfer of the container without any sale consideration thereof. The impugned provision, it is assumed will be attracted in the first two modes of sale but not to the third one as in that case there is no sale of the container and the impugned provision applies when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturers and suppliers of cement in gunny bags/ plastic bags. They were required to pay sales tax under section 5(3-D) of the Karnataka Sales Tax Act (the KST Act) on the containers at the rate applicable to the contents. They filed writ petition in the High Court of Karnataka challenging the validity of section 5(3-D) of that Act. Following the judgment in Ranganatha Associates v. State of Karnataka [1990] 78 STC 1 (Kar) to which we shall advert presently, the constitutional validity of the said section was upheld and the writ petition was dismissed. On appeal to the Supreme Court the appellants did not canvass the question of validity of section 5(3-D) but confined the arguments to the interpretation of section 5(3-D). Observing that the said section of the KST Act is comparable to section 6-C (unamended) of the Act, it was pointed out that the observations of the Supreme Court in Raj Sheel's case [1989] 74 STC 379 were equally applicable to construction of section 5(3-D) and that the liability for sales tax on the gunny bags packed with cement, sold by the appellants, had to be considered having regard to the facts of each case after determining what were the ingredients of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the container or of the packing material is charged for separately or not". This leads us to the enquiry as to whether the presence of those words will make any difference in interpreting the impugned provision. In Raj Sheel's case [1989] 74 STC 379 the Supreme Court laid stress on the fact that the authorities under the Act should have considered the simple question of fact as to whether there was an agreement, express or implied, to sell the packing material and what was the intention of the parties and that question cannot be decided on fictions or surmises. For that purpose it was indicated that the Commercial Tax Officer could ask the assessee to produce the relevant material and in default of his so doing the authority might draw an adverse inference against him; as the burden lay upon the Commercial Tax Officer to prove that the turnover was liable to tax he had to decide that question and in so doing he could rely upon the oral statements, accounts and other documents, take into consideration the nature and purpose of the packing material used and make personal enquiry. We are unable to accede to the contention of the learned Government Pleader that by incorporating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibits class legislation but permits classification provided the classification satisfies two conditions, viz., (i) it must be founded on intelligible differentia and (ii) the differentia must have a rational nexus with the object sought to be achieved by the statute in question (see Ram Krishna Dalmia v. Justice S.R. Tendolkar AIR 1958 SC 538). Here the containers are classified into two categories: (i) containers sold as such and (ii) containers packed and sold along with the contents. This classification, in our view, is a reasonable classification and has rational nexus with the object sought to be achieved by the impugned provision. It has the advantage of making the levy and collection of the sales tax easy and minimises the scope for evasion of tax. Such a classification was upheld by the Division Bench of this Court in Raj Sheel's case [1987] 64 STC 398 which was approved by the Supreme Court in Raj Sheel's case [1989] 74 STC 379 and also by the Karnataka High Court in Ranganatha Associates case [1990] 78 STC 1 and also in Vasavadatta Cements case [1996] 101 STC 168 (SC), though an appeal was filed in the Supreme Court in Vasavadatta Cements case [1996] 101 STC 168, the ques ..... X X X X Extracts X X X X X X X X Extracts X X X X
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