TMI Blog2000 (9) TMI 1026X X X X Extracts X X X X X X X X Extracts X X X X ..... n. Either gunny bags or HDPE bags are used for packing the cement. 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 condition, that is to say, together with the container. Nevertheless, the petitioner wants to contend that cement and the bags used for packing were sold and billed for separately as the law does not prohibit it. The petitioner further contends that the factum of separate sale of packing material should not influence the tax rate on cement and that is the premise on which the entry 18 of the First Schedule is sought to be challenged by the petitioner. This move is considered to be an artificial tax avoidance measure and the respondents maintain that the Legislature wanted to resist such move by tightening the provisions of law in the Andhra Pradesh General Sales Tax Act. By Andhra Pradesh General Sales Tax (Amendment) Act, 1996 (Act No. 27 of 1996), the following entry was substituted in the place of the then existing entry "cement": "18. Cement,- (a) Where the sale price of cement inAt the point 16 paise cludes the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned Government Pleader points out that the decision in Arya Vaidya Pharmacy's case [1989] 73 STC 346 (SC); (1989) 2 SCC 285 is distinguishable and the prescription of different rates of tax in the peculiar circumstances obtaining in cement and liquor trade is not impermissible. 5.. Before we proceed to examine the respective contentions, it is necessary to advert to the legislative measures undertaken to plug the leakage of revenue to overcome the tax planning devices in relation of packing material. 6.. Section 6-C was introduced by the Andhra Pradesh General Sales Tax (Amendment) Act (Act No. 11 of 1984). The provision reads as follows: "6-C. Levy of tax on packing materials.-Notwithstanding anything in sections 5 and 6-A, where goods packed in any materials are sold or purchased, the materials in which the goods are so packed shall be deemed to have been sold or purchased, along with the goods and the tax shall be leviable on such sale or purchase of the materials at the rate of tax, if any, as applicable to the sale, or, as the case may be, purchase of goods themselves." 7.. The introduction of this provision did not achieve the desired objective. The judicial i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent express or implied for the sale of packing material and whether any artificial or colourable devices were adopted to split up the transaction so as to take the plea that there was a separate contract for the sale of packing material. 11.. Taking clue from the provisions in Kerala General Sales Tax Act and Karnataka Sales Tax Act, the Andhra Pradesh State Legislature made another attempt to introduce section 6-C in a modified form. Accordingly, the following provision was substituted by A.P. 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 anything 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." 12.. In order to follow up the amendment to the best of advantage from the Revenue's point of view, the entry in the First Schedule relating to cement was amended as follows by Act 27 of 1996 with effect from August 1, 1996: "18. Cement,- (a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the packing materials is charged separately or not be the same as those applicable to goods contained or packed, and in determining turnover of the goods, the turnover in respect of the containers or packing materials shall be included therein. 5(6) Where the 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." In Premier Breweries' case [1998] 108 STC 598 (SC), the assessee contended that the containers were separately billed and charged for and it was not open to the assessing authority to include the value of the containers in the price of the liquor for the purpose of calculating the rate of tax. In other words, the assessee contended that the rate of 8 per cent applicable to the containers should be applied. This contention was rejected by the Kerala High Court. On appeal, the decision of the High Court was affirmed by the Supreme Court. Analysing the ingredients of relevant provisions quoted above, the Supreme Court pointed out at paragraph 6 that: "The language of sub-sections (5) and (6) of section 5 is clear and u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd section 5(3-D) of the Karnataka Sales Tax Act". It may be stated that section 5(5) and 5(6) of the Kerala General Sales Tax Act are almost similar. 19.. The Supreme Court categorically held that sub-sections (5) and (6) of section 5 of the Kerala General Sales Tax Act will have to be construed uninfluenced by the decision in Raj Sheel's case [1989] 74 STC 379 (SC). It was then observed at paragraph 21 thus: "Section 5(3-D) of the Karnataka Act, if anything, is more specific than section 5(5) of the Kerala Act which deals with cases where the goods sold or purchased are contained in containers or are packed in any packing material. It specifically provides that the rate of tax and the point of levy applicable to turnover of such containers or packing materials will be the same as those applicable to the goods contained or packed. This rule will apply even in a case where the containers or the packing materials had already been subjected to tax under the Act. It also provides that the rule will apply 'whether the price of the containers or the packing materials is charged separately or not'. In view of these clear provisions of section 5(3-D) of the Karnataka Act and the corre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levy in respect of packing material purchased within the State of Andhra Pradesh. 22.. In so far as the petitioner wants to claim exemption or deduction on the value of packing material purchased within the State, there is no difficulty at all by virtue of G.O. Ms. No. 374, dated April 25, 1987. The tax paid on packing material at the point of first sale and corresponding purchase by the petitioner will be given set-off. Therefore, to the extent of the value of gunnies or HDPE bags, there will be reduction of tax already suffered while paying the tax on the cement. But what the petitioner wants is that the rate of tax on cement should not vary depending on whether the packing material cost is split up and charged for separately in the bills. In other words, there must be uniform rate of tax for cement without linking it up to the packing material. The question is whether the legislation providing for different rates of tax on cement can be said to be violative of article 14 of the Constitution. 23.. As already noted, the sheet anchor of petitioner's argument is the decision of the Supreme Court in Arya Vaidya Pharmacy's case [1989] 73 STC 346 (SC); (1989) 2 SCC 285. The fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax 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 classification for taxation'. This principle was approved by this Court in East India Tobacco Co. v. State of Andhra Pradesh [1962] 13 STC 529 (SC) at page 533; [1963] 1 SCR 404 at page 410; AIR 1962 SC 1733 at page 1735. Applying it, the court observed: 'If a State can validly pick and choose one commodity for taxation and that is not open to attack under article 14, the same result must follow when the State picks out one category of goods and subjects it to taxation'. This indicates a wide range of selection and freedom in appraisal not only in the objects of taxation and the manner of taxation but also in the determination of the rate or rates applicable...............' The next principle is that the burden of proving discrimination is always heavy and heavier still when a taxing statute is under attack. This was also observed in the same case of this Court at (page 534 of 13 STC) page 411 (of SCR); (at page 1735 of AIR) appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 dependent 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 [1989] 73 STC 346 (SC). 29.. The reason for imposing a 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. Contrary to the normal business practices and modalities of sale of cement, the manufacturers have started bifurcating the price of cement and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en prescribed and the rate of tax on cement is made to depend on the two contingencies envisaged in (a) and (b) of entry 18. We do not find any basis to hold that such classification of the same commodity is impermissible and Here italicised. would per se amount to discrimination. The classification rests on an intelligible and rational basis having nexus with the object sought to be achieved, viz., to plug the leakage in revenue. The question of infraction of article 14 does not therefore arise. 31.. A division Bench of this Court in Poorna Wines v. Commissioner of Commercial Taxes [1995] 97 STC 40; (1994) 18 APSTJ 173 held that notwithstanding the artificial bifurcation of the price which the assessee paid to the manufacturer while purchasing the beer and the price received while selling the same to the retail dealers, the assessee must be deemed to have received a single amount for the sale of the bottled beer and the cost of the bottle cannot be separated from the price of the beer. 32.. Considering the purpose and objective behind the impugned provision and the mischief sought to be remedied, it cannot be said that the differentiation in the rate of cement is unreasonable ..... X X X X Extracts X X X X X X X X Extracts X X X X
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