TMI Blog2000 (6) TMI 793X X X X Extracts X X X X X X X X Extracts X X X X ..... n Excise Act, 1950. For the assessment years in question, the assessing officer held that though the sale of beer and IMFL are exempted from tax under section 4 of the Act but as they are being sold contained in bottles, tax is leviable on the sale of bottles as packing material at 5 per cent. The turnover of the bottles, as sale of packing material which was taken to be 1 per cent of the aggregate of the amount of the sale price received by the dealer in view of the first proviso to the definition of "taxable turnover" as given in sub-section (s) of section 2 of the Act. The assessing officer levied tax keeping in view last proviso to sub-section (1) of section 5 of the Act and also levied interest and penalty under sections 11B and 16(1)(n) of the Act respectively as under: Year Tax Interest Penalty Total 1989-90 5,21,887 43,838 200 96,225 1990-91 33,969 36,566 200 60,735 1991-92 60,452 37,639 500 98,591 3.. Against these assessment orders, the dealer-petitioner preferred appeals before the Deputy Commissioner (Appeals), Udaipur who vide his order dated November 18, 1995 dismissed those appeals. Thereafter, second appeals were preferred before the Rajasthan Tax Boar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the dealer-petitioner. 7.. We have heard Mr. K.N. Joshi, the learned counsel for the petitioner and Mr. Sanjeev Johari, the learned counsel for the respondents. 8.. The first question that crops up for consideration in these writ petitions is whether in the facts and circumstances of this case, bottles can be considered as packing material at all? 9.. For deciding the controversy involved in this case, it would be very useful to quote last proviso to section 5(1) of the Act in extenso: "Section 5. Rate of tax.-(1) The tax payable by a dealer under this Act shall be at such single point in the series of sales by successive dealers as may be prescribed and shall be levied at such rate not exceeding seventy five per cent on the taxable turnover, as may be notified by the State Government in the official Gazette: (i)........................... (a) to c.................... (ii)........................... (a) to c.................... Provided further.................... Provided further.................... Provided further.................... Provided also that when any goods are sold, packed in any material, the tax shall be leviable on the sale of such packing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been defined as under: "to mean to put things together into bundles, box, bag, etc., for transport or storing. Prepare and put up meat, fruit, etc., in tins, etc., for preservation put closely together cover thing with something pressed tightly round." The term pack has been defined in Webster's Dictionary as under: "v.i. packing p.p. to make a pack or bundle or to put together compactly in a box, trunk, etc., for carrying or storing: to fill (a box, trunk, etc.) for carrying or storing, as he packed his bags; to put food in cans, boxes, etc., for preservation or sale (b) food in cans, boxes, etc., for preservation or sale; to press together firmly; as packed earth; to lead an animal with a pack and packing means: Packing the act or process of a person or thing that packs, especially the canning of meats, fruits or vegetables, any material used in packing as a fibrous substance placed around valves to make them water tight, etc." These meanings of term "pack" and "packing" in its different shades include not only the activity of wrapping or encasing or containing in goods not only for storage and transportation, but also the activity of placing the commodity in a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t importantly includes glass and plastic as packing material to be used in the form of bottles, jars and carboys for holding liquids including liquor. Significantly, it clearly makes out use of packing material both at production stage as well as distribution stage of commodity contained in any package. This signifies, whether packing is used at production stage to bring the commodity to marketable stage, as for storage or preservation or easy handling or for transportation at distribution stage, at no stage, it loses its identity as a commodity classified as packing material, different from the commodity it houses. 13.. Here, we may invite attention to the decision of honourable Supreme Court in Lt. Governor, Delhi v. Ganesh Flour Mills Co. Ltd. [1973] 31 STC 354; AIR 1973 SC 705, wherein while considering the term "packing material or packing" it has been observed as under: "It may be noticed that packing materials are necessary not only for solid articles but also for those in liquid and semi-liquid form. According to observations on page 22 of Encyclopaedia Britannica, Vol. 17, 1968 Edition, in a society that produces foodstuffs and manufactured articles in one locality a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the following words: "A narrow necked hollow vessel for holding liquids: the contents of such a vessel: liquor or drinking." 15.. The above definition, points to the direction that bottles are nothing but narrow necked containers for holding liquor and other liquids and, the bottles may be of glass, plastic or of any other material. Moreover, it has not been "denied" and even cannot be denied that bottles by themselves are independent marketable commodity, and in all cases bottles need not necessarily form part of sale. Instances are not infrequent when either bottles are charged separately, or there is stipulation of deposit of money for return of bottle and right to forfeit the same in case bottles are not returned. There are also cases where price of commodity with or without bottle is different. We are not dealing with any commodity which becomes an integral part of the commodity, e.g., a toothpaste or shaving cream that is pressed into a "tube" and becomes integral part of the commodity either for use or sale, or like vials of medicines in which liquid medicines is sold and that medicine can be used only on breaking the vial to be rendered a waste material with no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inition of exciseable goods and the goods, a Constitution Bench of the Supreme Court in Union of India v. Delhi Cloth and General Mills Co. Ltd. AIR 1963 SC 791, has stated that the definitions make it clear that to become "goods" an article must be something which can ordinarily come to the market to be bought and sold. Considering the aforesaid view, the Supreme Court in Indian Cable Co. Ltd.'s case [1995] 97 STC 307; AIR 1995 SC 64 held: "The provisions of the Act (Central Excises and Salt Act, 1944), mandate that a finding that the goods are marketable is a prerequisite or 'sine qua non' for the levy of duty. 'Marketability' is a decisive test for dutiability. It only means 'saleable' or 'suitable for sale'. It need not be in fact 'marketed'. The article should be capable of being sold or being sold to consumers in the market, as it is, without anything more." 20.. It is in the context of the Central Excises and Salt Act, 1944, that the court observed that the manufacture which is liable to excise duty under the Central Excises and Salt Act, 1944 must be to bring into existence a new substance known to the market. Therefore, the court held that marketability is a decisive t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... far as the container or bottle in question are concerned in which the principal object, namely, liquor is sold continues to bear the character of a packing material or container so far as the levy of sales tax is concerned and it has to be dealt with accordingly. It cannot be considered as an integral part of the principal object liquor which is merely contained content in the container. 22.. We, therefore, hold that bottles are nothing but vessels used for selling the liquor containing therein and as such, they are packing material. As per charging section 3 of the Act every sale is included in turnover and unless exempted or deductible under any provision, becomes part of taxable turnover, and the rate at which taxable turnover is to be taxed is provided, in section 5. We further hold that if the transfer of property in bottles along with liquid (viz., liquor) contained therein is considered to be sale of the bottles as packing material the rate of tax payable on turnover relating to such sales shall be governed by the last proviso to section 5(1) of the Act. 23.. This brings us to consider the second point raised by the learned counsel for the petitioner whether in the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itution of India in the context of tax on sale of goods, that being legislative field "the sale of goods" unless otherwise defined for the purpose of entry 54, it is not within the domain of the State legislation to enlarge the definition of "sale" so as to bring within the ambit of taxation transactions which could not be considered a sale according to concept of sale under the laws of contract or sale defined in Sale of Goods Act as a matter governing rates and duties arising from any transaction of sale. The principle is well-settled. The expression sale of goods cannot be considered for the purpose of taxation in its popular sense but must be understood in its legal sense and should be given the same meaning which it has in the Sale of Goods Act, 1930. It is a nomen juris, its essential ingredients being (1) an agreement to sell moveables (2) for a price and (3) property passing therein pursuant to that agreement. In order to constitute a sale, it is necessary that there should be an agreement between the parties for the purpose of transferring title to goods, which presupposes capacity to contract, that it must be supported by money consideration, and that as a result of the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Supreme Court took a different view in the later decisions in Oil and Natural Gas Commission v. State of Bihar [1976] 38 STC 435 (SC); AIR 1976 SC 2478 and Vishnu Agencies (Pvt.) Ltd. v. Commercial Tax Officer [1978] 42 STC 31 (SC); AIR 1978 SC 449 that where there are statutory compulsions, the statute itself should be treated as supplying consensus. However in Vishnu Agencies case [1978] 42 STC 31 (SC); AIR 1978 SC 449 while six of the seven honourable Judges presiding the Bench concurred with overruling the decision in New India Sugar Mills case [1963] 14 STC 316 (SC), the seventh Judge, i.e., M.H. Beg, C.J., held the earlier cases to be distinguishable on facts. Likewise difficulty arose where the property in goods were passed not as a result of sale but as a part of the services rendered to its customers, like in restaurants or hotel business. With all these ambiguities, controversies and constraints, surrounding the impost and frequent questions arising therefrom, the Constitution of India was amended through the Constitution of India (Forty-sixth Amendment) Act, 1982 by inserting clause (29A) to article 366 of the Constitution, and the legislative field of levy of "tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts as if there was a sale of such goods and materials." 29.. In pursuance of this amendment, the legislative activity did come into existence subjecting the transactions to tax on sales or purchases of goods which fell within the extended meaning of tax on sale or purchase of goods under clause (29A) of article 366 of the Constitution of India. 30.. In the context of the present controversy and in the light of the arguments raised before us, sub-clause (a) of clause (29A) of article 366 of the Constitution of India in the light of which section 2(o) of the Rajasthan Sales Tax Act, 1954 was amended, needs special attention which now permits transfer of any property in any goods otherwise than in pursuance of a contract for cash, deferred payment or other valuable consideration can be subjected to levy of tax. 31.. The first thing which requires to be considered is whether the element of agreement of any sort is ruled out in all circumstances, in construing the transaction to be a transaction of "sale", since aforesaid amendments have taken place. This in turn begs the question what is the ambit and scope of sub-clause (a) of clause (29-A) of article 366 of the Constitution o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idual materials used therein. Thus, there being no contract for transferring the material, the transaction was not considered to be a sale of such material used. This was another facet of lack of contract in respect of goods in relation to transfer of which tax was sought to be levied. Similarly where property in goods transferred was not under an agreement to sale, but under a contract of service like food articles are supplied by hotels or restaurants, it was not considered sale of such food articles because of absence of contract to sell the food articles, contract being of rendering service and supply of goods being incidental or part of it. In the like manner goods were supplied by any unincorporated association or body to its members were not considered as sale, because unincorporated association had no legal status as person and the identity of person being not different from its members, no contract could come in between them. For inclusion of such transaction with the permissible tax arena, sub-clauses (e) and (f) were introduced. It is also to be noticed that in all such cases transfer of property in goods is related to condition "for cash, deferred payment or other valua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsactions by way of sales, to be not liable to sales tax. As a result of these decisions, a transaction, in order to be subject to the levy of sales tax under entry 92A of the Union List or entry 54 of the State List, should have the following ingredients, namely, parties competent to contract, mutual assent and transfer of property in goods from one of the parties to the contract to the other parties thereto for a price. 3.. This position has resulted in scope for avoidance of tax in various ways. An example of this is the practice of inter-State consignment transfers, i.e., transfer of goods from head office or a principal in one State to a branch or agent in another State or vice versa or transfer of goods on consignment account, to avoid the payment of sales tax on inter-State sales under the Central Sales Tax Act. While in the case of a works contract, if the contract, treats the sale of material separately from the cost of the labour, the sale of materials would be taxable, but in the case of an indivisible works contract, it is not possible to levy sales tax on the transfer of property in the goods involved in the execution of such contract as it has been held that there i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 42 STC 386 (SC); AIR 1978 SC 1591. States have been proceeding on the basis that the Associated Hotels of India's case [1972] 29 STC 474 (SC); AIR 1972 SC 1131 was applicable only to supply of food or drink by a hotelier to a person lodged in the hotel and that tax was leviable on the sale of foodstuffs by a restaurant. But overruling the decision of the Delhi High Court, the Supreme Court has held in the above case that service of meals whether in a hotel or restaurant does not constitute a sale of food for the purpose of levy of sales tax but must be regarded as the rendering of a service in the satisfaction of a human need or ministering to the bodily want of human beings. It would not make any difference whether the visitor to the restaurant is charged for the meal as a whole or according to each dish separately. 9.. It is, therefore, proposed to suitably amend the Constitution to include in article 366, a definition of 'tax on the sale or purchase of goods' by inserting a new clause (29A). The definition would specifically include within the scope of that expression tax on- (i) transfer for consideration of controlled commodities; (ii) the transfer of property in good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the another in respect of transfer of property of goods incidentally in other commodity, without reference to the terms of contract. If the consideration of goods subject to contract has been charged by the dealer and paid by the buyer, only in respect of the one or the principal commodity for which agreement to sell exists, it is not permissible to hold that though the agreement exists for transfer of property in goods of one commodity only for whole consideration still as the property in other goods have been transferred incidentally, they must be considered to have been transferred, for cash or other consideration de hors the contract and to split such whole consideration into two, contrary to contract. 37.. This splitting up of one consideration de hors the terms of transfer is not envisaged whether the transfer of property in goods is under a contract voluntarily agreed or under a contract statutorily inferred because of the statutory provisions. In either case, the consideration is related to the subject of the transaction as a whole. If the transaction is in respect of two or more commodities, it would be referable to two or more commodities and splitting up of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... become irrelevant. Such case may require to be looked into in the light of the statutory provisions of construing compulsory transfer of property in goods subject to transaction, viz., the commodity which is sought to be transferred, the price which is fixed for transfer of such commodity or commodities under the law and whether subsidiary or ancillary matters as to packing or freight are too provided under statutes governing transfer or is left to the parties to negotiate and settle. However, where the transfer of property in goods is as a result of agreement or contract as envisaged under the Sale of Goods Act, the necessary ingredient of sale of any commodity as enunciated by the Supreme Court in number of cases has to be looked into. 41.. The principle has been succinctly stated by the Supreme Court in Hyderabad Deccan Cigarette Factory v. State of Andhra Pradesh [1966] 17 STC 624 as under: "That in order to constitute a sale it was necessary that there should be an agreement between the parties for the purpose of transferring title to goods, that it should be supported by money consideration and that as a result of the transaction property should actually pass in the goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xists under clause (i) of section 2(o) defining "sale" under the Rajasthan Sales Tax Act as expressed in clause (a) of article 366(29A) of the Constitution of India. Even where the property in goods have been transferred, and one may not inquire into the existence of an agreement or a contract for transfer of such commodity in the sense having ingredient of free consent necessary for a valid contract still if there is no link between the consideration which passes from buyer to the dealer with the goods in question, it cannot be considered a transaction of sale. 45.. Here, we may make it clear that the question that has arisen in the present case is having somewhat distinctive colour and has arisen in different circumstances than decided cases. The precedents are aplenty where transfer of property in goods have taken place for one single consideration and the dealer concerned has sought to deduct from that single consideration the costs or the price attributable to packing material for the purpose of reducing turnover referable to content of the commodity as distinct from container on finding that transfer of content and container are two separate sale transactions. The controver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emed to be two separate sales of commodity packed and packing material? 46.. We do not find any room for raising any such presumption, that in a case where the price is not charged separately and the principal commodity is exempt from tax as a matter of law, it should be presumed that it is a transaction of transfer of the principal commodity as well as packing material for separate considerations so as to constitute two transactions independent of each other. In this connection, we may refer to the decision of the Supreme Court in Hyderabad Deccan Cigarette Factory's case [1966] 17 STC 624, where the question arose of somewhat like nature in respect of sale of cigarettes. The cigarettes were sold packed in packets of cardboard and dealwood. No express contract of sale of packing material between the assessee and its customers was there. The tobacco and its products were exempted from sales tax during the relevant period and the turnover in respect of sale of tobacco was excluded from the total turnover but on the ground that the exemption did not apply to containers and the packing materials, which consisted of cardboard and dealwood, the C.T.O. sought to assess tax on the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e instant case, having regard to the circumstances of the case, intended to sell or buy the packing materials, or whether the subject-matter of the contracts of sale was only the cigarettes and that the packing materials did not form part of the bargain at all, but were used by the seller as a convenient and cheap vehicle of transport. He may also have to consider the question whether, when a trader in cigarettes sold cigarettes priced at a particular figure for a specified number and handed them over to a customer in a cheap cardboard container of insignificant value, he intended to sell the cardboard container and the customer intended to buy the same? It is not possible to state as a proposition of law that whenever particular goods were sold in a container the parties did not intend to sell and buy the container also. Many cases may be visualised where the container is comparatively of high value and sometimes even higher than that contained in it. Scent or whisky may be sold in costly containers. Even cigarettes may be sold in silver or gold caskets. It may be that in such cases the agreement to pay an extra price for the container may be more readily implied. In the present c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... never suggested that there was a contract either express or implied for the sale of packing material between the dealer and the buyer. The court considered the value of packing material as compared to the value of the contents of the packet and held that an agreement to sell packing material independently of chewing tobacco could not under the general law be implied. In reaching this conclusion, the court reiterated the view expressed in Hyderabad Deccan Cigarette Factory's case [1966] 17 STC 624 (SC). In this connection, the principle enunciated by the Supreme Court in Raj Sheel v. State of Andhra Pradesh [1989] 74 STC 379 may be noticed: "It is difficult to comprehend the need for such a provision. It can at best be regarded as a provision by way of clarification of an existing legal situation. If the transaction is one of sale of the goods only, clearly all that can be taxed in fact is the sale of the goods, and the rate to be applied must be the rate as in the case of such goods. It may be that the price of the goods is determined upon a consideration of several components, including the value of the packing material, but nonetheless the price is the price of the goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed that it had charged its customers separately for the liquor and the cartons, and that, therefore, the turnover of the cartons could not be included in the turnover of the liquor which was taxable at 50 per cent but that the turnover of the cartons had to be taxed separately at the rate of 8 per cent as provided in entry 97 of the First Schedule to the Kerala General Sales Tax Act, 1963. The High Court rejected the claim. 50.. As noticed above, in Premier Breweries case [1998] 108 STC 598 (SC), there was no issue whether the packing material has been sold or not. In fact, the price for packing material had been separately charged and the dealer was claiming that since the sale of packing material was for a separate consideration, it should be taxed as sale of packing material only and not at the rate at which, the content was sold. It was also a case of sale of liquor packed in cardboard carton. The court observed: "The underlying idea behind these Rules is that packed goods are to be taxed as composite units. Various rates of tax have been fixed by the Act for sale or purchase of various types of goods. If the goods are sold in packages or containers then for the purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nover of two different commodities would be same where the sale of packing material is a part of the one single transaction and the commodity sold in the packing material. It is only in cases where the principal commodity is exempt from tax then the question may arise for levying tax on different rates on the turnovers referable to the packing material. However, merely because different rates have been prescribed for packing material in cases where the goods sold in packed condition are exempt from tax, does not give rise to any such legal fiction to assume that where there is a single price charged for the commodity sold in packed condition, invariably, there is a sale of packing material independent to the sale of the principal commodity. In all such cases where the assessee claimed deduction by raising plea of independent transaction to reduce his taxable turnover of the principal commodity or the Revenue wants to tax it independent of the principal commodity, it has to be established as fact before invoking rates to be applied under section 5(1) of the Act or provisions thereto that there is a sale of the commodity sought to be taxed in accordance with the well-established norm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity comes to deliverable state. 54.. If the question rests on presumption then anything defined in section 2(p) of the Act, it assists the dealer that once everything done to the goods at the time or before the delivery becomes part of the sale price of the commodity and the commodity being exempt from payment of tax, it cannot thereafter be split up to make it a different transaction inasmuch as the expenses incurred on packing material to bring the goods in deliverable stage, it does not become consideration for the sale of packing material as such but becomes sale price of commodity packed under section 2(p). The Revenue cannot be permitted to ignore the deeming provision merely because on operation of deeming provision, the cost of packing material becomes part of sale price of a commodity which is exempted from tax. Once the deeming provision operates, its effect cannot be undone by assuming some other fact, which is not provided. In such circumstances, if the Revenue seeks to tax the sale of packing material independent of the sale of the commodity it has to establish that one consideration was charged for two independent transactions amalgamated into one, viz., for transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale of such bardana or container or other packing material which is received along with such goods sold by the purchaser at the time of purchases thereof. The provision is really aimed at determining the turnover of packing material where sale of such packing material has taken place in the circumstances mentioned therein by giving an option to the dealer, either to be taxed at actual sale price, which can be established by him or on estimate basis of the turnover of commodity with the purchase of which bardana, etc., has come to such dealer and sold by him later on. It nowhere speaks about any deemed sales of packing material in any given circumstance. Reliance on section 2(s) is misplaced. 56.. Nothing has been brought on record that cost of bottle in comparison to price of IMFL was substantial enough from which even implied sale of contract for sale of bottles could be inferred. 57.. For the reasons already discussed above, since the Revenue authorities have failed to decide the question about the sale of packing material by establishing that the transfer of property in packing material has taken place for consideration referable to the transfer of property in packing materi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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