Raj
Steel & Ors Vs. State of A.P. & Anr [1989] INSC 193 (16 May 1989)
Pathak,
R.S. (Cj) Pathak, R.S. (Cj) Kania, M.H.
CITATION:
1989 AIR 1696 1989 SCR (3) 305 1989 SCC (3) 262 JT 1989 Supl. 226 1989 SCALE
(1)1573
ACT:
Andhra
Pradesh General Sales Tax Act, 1957/Andhra Pradesh General Sales Tax Rules.
Sections 2, 5, 6 and First Schedule Item 157/ Rule 6--Assessees--Manufacturers
of beer/cement--Goods--Beer sold in bottles packed in Cartons and cement in
gunny bags--Assessment to sales tax made on the turnover of packing
material--Whether valid.
HEAD NOTE:
The
appellants in some of the appeals are manufacturers of or dealers in beer, the
appellants in the other appeals are manufacturers of or dealers in cement.
The
appellants filed writ petitions in the Andhra Pradesh High Court challenging
the assessment made under the Andhra Pradesh General Sales Tax Act, 1957 on the
turnover of packing material employed either by way of bottles for containing
beer or by way of gunny bags for packing cement.
The
appellants challenged the application of such rate in assessments made in
relation to the period before 8 July, 1983.
The appellants also challenged the application of that rate proposed pursuant
to s. 6C in show cause notices issued by the concerned authority. Section 6C
was inserted in the Act with effect from 8 July, 1983.
The
High Court while dismissing the writ petitions, proceeded on the basis that,
having regard to the nature of the goods and to the trade practice in respect
of beer and cement, the containers were necessary concomitants in the
transactions, and the transfer of property in the containers was incidental or
unavoidable, that the sale transactions had to be regarded as composite and
integrated sales of the containers and their contents and what was really sold
was the bottled beer or the cement packed in gunny bags. The learned Judges
expressed the view that the consideration paid by the purchaser to the dealer
consisted not only of the price of the contents, namely, beer or cement, but
also included the price of the containers, that is, the bottles and the cartons
in the case of beer and gunnies in the case of cement.
While
allowing the appeals and remanding the cases to the High 306 Court, and in the
case of the writ petitions, while directing the assessing authority to
determine the matters after allowing the dealers to show cause, this Court,
HELD:
(1) A transaction of sale may consist of a sale of the product and a separate
sale of the container housing the product with respective sale considerations
for the product and the container separately; or it may consist of a sale of
the product and a sale of the container but both sales being conceived of as
integrated components of a single sale transaction; or what may yet be of a
third case, it may consist of a sale of the product with the transfer of the
container without any sale consideration therefore. The question in every case
will be a question of fact as to the nature and ingredients of the sale. It is
not right in law to pick on one ingredient only to the exclusion of the others
and deduce from it the character of the transaction.
In
every case, the assessing authority is obliged to ascertain the true nature and
character of the transaction upon a consideration of all the facts and circumstances
pertaining to the transaction. [310C-E; H; 311A] Hyderabad Deccan Cigarette Factory v. The State of A. P., [1966] 17 STC 624, referred to.
(2)
There can be as many different kinds of transactions as the circumstances of
the case may require either by reason of prevailing trade practice or market
conditions or personal convenience, and as human ingenuity may devise for bonafide
reducing the burden of tax. Whether a transaction for sale of packing material
is an independent transaction will depend upon several factors. [312E]
(3)
The issue as to whether the packing material has been sold or merely
transferred without consideration depends on the contract between the parties.
The fact that the packing is of insignificant value in relation to the value of
the contents may imply that there was no intention to sell the packing, but
where any packing material is of significant value it may imply an intention to
sell the packing material. In a case where the packing material is an
independent commodity and the packing material as well as the contents are sold
independently. The sale of the packing material is liable to tax independently.
[313E-G] Commissioner of Taxes, Assam v. Prabhat Marketing Co. Ltd., [1967] 19 STC 84; The State of Karnataka v. Shaw Wellace & Company Ltd.,
[1981] 48 STC 169; Arlem Breweries Ltd. v. The Assistant Commissioner of Sales
Tax, Panaji, [1983] 53 STC 172; M/s. Jamana Flour 307 Mill (P) Ltd. v. State of
Bihar, AIR 1987 SC 1207 and Punjab Distilling Industries Ltd. v. The Commissioner
of Income Tax, Simla, [1959] Supp. 1 SCR 683, referred to.
4.
Section 6C seems to envisage a case where it is the goods which are sold there
is no actual sale of the packing material. The section provides by legal
fiction that the packing material Shall be deemed to have been sold along with
the goods. In that event, the tax will be leviable on such deemed sale of the
packing material at the rate of tax applicable to the sale of the goods
themselves. 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, which merely explains that the components which have entered into
determining the price of the goods cannot be treated separately from the goods
themselves, and that no account was in fact taken of the packing material when
the transaction took place, and that if such account must be taken then the
Same rate must be applied to the packing material as is applicable to the goods
themselves. [314D-E; 315A-B]
(5) It
is difficult to accept the contention of the appellants that a rate applicable
to the packing material in the Schedule should be applied to the sale of such
packing material in a case under s. 6C, when in fact there was no such sale of
packing material and it is only by legal fiction, and for a limited purpose,
that such sale can be contemplated. In the circumstances, no question arises of
s. 6C being constitutionally discriminatory, and therefore invalid. [315B-C]
(6)
The High Court has proceeded on the assumption that what is charged is the
price of the bottled beer or of cement packed in gunny bags. No attempt was
made by the tax authorities to ascertain the facts of each case and to
determine what were the actual ingredients of the contract and the intention of
the parties. Assumptions had been made when what was required was a detailed
investigation into the facts. Because of the lack of adequate and clear factual
material, the High Court also was compelled to proceed on the basis of generalised
statements and broad assumptions. [315C-E]
CIVIL
APPELLATE JURISDICTION: Civil Appeal NO. 186875 of 1986.
From
the Judgment and Order dated 28.2.1986 of the Andhra Pradesh High Court in W.P.
Nos. 10181 of 1983, 11830, 4677, 4763, 4778 of 1985, 4926, 4935 and 4948 of
1986.
308
A.K. Ganguli, A.K. Sen, Shanti Bhushan, Harish N. Salve, S. Krishnan, J.B. Dada
Chanji, Mrs. A.K. Verma, Joel Pares, R. Dave, A. Subba Rao, Sunil Kumar Jain,
Vijay Hansaria, K. Srinivasa Mufti, Kailash Vasudev, Nauni Lal, A.T.M. Sampath,
R. Karanjawala, Mrs. M. Karanjawala and H.S. Anand for the Appellants.
M.K. Banerjee,
Solicitor General, B. Datta, Additional Solicitor General, T.V.S.N. Chari, Ms. Sunita
and Ms. Vrinda Grover for the Respondents.
The
Judgment of the Court was delivered by PATHAK, CJ. These appeals are directed
against the judgment of the High Court of Andhra Pradesh dismissing several
writ petitions filed by the appellants challenging assessments made under the
Andhra Pradesh General Sales Tax Act 1957 on the value of packing material at
the rate applicable to goods packed therein.
The
appellants in some of the appeals are manufacturers of or dealers in beer, the
appellants in the other appeals are manufacturers of or dealers in cement. The
beer is sold in bottles packed in cartons. The cement is sold in gunnies.
Section
5 of the Andhra Pradesh General Sales Tax Act (hereinafter referred to as 'the
Act') provides for the levy of sales tax on the turnover of goods at the rates
specified in that provision. In the case of goods mentioned in the First
Schedule to the Act tax is leviable at the rates, and at the point of sale,
specified therein. In the case of goods mentioned in the Sixth Schedule,
likewise tax is leviable at the rates and at the points specified therein.
Item
19 of the First Schedule speaks of 'Containers other than gunnies and bottles'.
These goods are subject to tax at the rate of 5 paise in the rupee at the point
of first sale in the State. Item 123 of the First Schedule enumerates 'glass and
glassware', which is subject to sales tax at 9 paise in the rupee at the point
of first sale in the State.
In
respect of cement tax is leviable by reference to item 18 of the First Schedule
at the rate of 10 paise in the rupee at the point of first sale in the State,
while gunnies, formerly mentioned under item 67 of the First Schedule, and now
included in item 157 of that Schedule, are subject to tax at the point of first
sale in the State. And beer is covered by item 1 of the Sixth Schedule under
the category 'Country Liquor' taxable at the rate of 10 paise in the rupee at
every point of sale other than at the point of last sale, at which point the
rate is 5 paise per rupee.
309
Clause (s) of Section 2 of the Act defines 'turnover' to mean the total amount
set out in the bill of sale (or if there is no bill of sale, the total amount
charged) as the consideration for the sale or purchase of goods (whether such
consideration be cash, deferred payment or any other thing of value) including
any sums charged by the dealer for anything done in respect of goods sold at
the time of or before the delivery of the goods and any other sums charged by
the dealer, whatever be the description, name or object thereof; or the
aggregate of amounts charged under section 5-C.
With
effect from 8 July,
1983, section 6-C was
inserted in the Act by Andhra Pradesh Act No. 11 of 1984, and it provides:
'Notwithstanding
anything in sections 5 and 6-A, where goods packed in any materials are sold or
purchased, the materials i,n 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.'
The net turnover of a dealer assessable to tax is determined under rule 6 of
the Andhra Pradesh General Sales Tax Rules, after deducting the amount
specified in clauses (a) to (1) of that rule from the total turnover. Of these
clauses, clause (g) speaks of:
'Amounts
relating to charges for services rendered in connection with the packing of
goods when specified and charged for by the dealer separately, without
including them in the price of goods sold.' The appellants filed the writ petitions,
out of which the present appeals arise, in the High Court at Hyderabad challenging the assessments to
sales tax made on the turnover of packing material employed either by way of
bottles for containing beer or by way of gunny bags for packing cement. The
appellants challenged the application of such rate in assessments made in
relation to the period before 8 July, 1983.
The appellants also challenged the application of that rate proposed pursuant
to s. 6C in show cause notices issued by the concerned authority. While
dismissing the writ petitions, the High Court has proceeded on the basis that
having regard to the nature of the goods and to the trade practice in respect
of beer and cement the containers were necessary concomitants in the transactions,
and the transfer of 310 property in the containers was incidental or
unavoidable, that the sale transactions had to be regarded as composite and
integrated sales of the containers and their contents and what was really sold
was the bottled beer or the cement packed in gunny bags. The learned Judges
observed further that even where money was paid to the dealer as security
deposit refundable on the return of the bottles the sale of the bottle could
not be treated as an independent transaction different and distinct from the
transaction of sale of the beer. So also was the case in the sale of cement
contained in gunnies. The learned Judges expressed the view that the
consideration paid by the purchaser to the dealer consists not only of the
price of the contents, namely, beer or cement, but also includes the price of
the containers, that is the bottles and the cartons in the case of beer and
gunnies in the case of cement.
It is
commonly accepted that a transaction of sale may consist of a sale of the
product and a separate sale of the container housing the product with
respective sale considerations for the product and the container separately; or
it may consist of a sale of the product and a sale of the container but both
sales being conceived of as integrated components of a single sale transaction;
so., what may yet be a third case, it may consist of a sale of the product with
the transfer of the container without any sale consideration therefore. The
question in every case will be a question of fact as to what are'. the nature
and ingredients of the sale. It is not right in law to pick on one ingredient
only to the exclusion of the others and deduce from it the character of the
transaction. For example, the circumstance that the price of the product and
the price of the container are shown separately may be evidence that two
separate transactions are envisaged, but that circumstance alone cannot be
conclusive of the true character of the transaction. It is not unknown that
traders may, for the advantage of their trade, show what is essentially a
single sale transaction of product and container, or a transaction of a sale of
the product only with no consideration for the transfer of the container, as
divisible into two separate transactions, one of sale of the product, and the
other a sale of the container, with a distinct price shown against each.
Similarly where a deposit is made by the purchaser with the dealer, the deposit
may be pursuant to a transaction where there is no sale of the container and
its return is contemplated, and in the event of its not being returned the
security is liable to forfeiture. Alternatively, it may be a case where the
Container is sold and the deposit represents the consideration for the sale,
and in the event of the container being returned to the dealer the deposit is
returned by way of consideration for the re-sale. In every case, the assessing
authority is obliged to ascertain the 311 true nature and character of the
transaction upon a consideration of all the facts and circumstances pertaining
to the transaction. That the problem almost always requires factual
investigation into the nature and ingredients of the transaction has been
repeatedly emphasised by this Court. In Hyderabad Deccan Cigarette Factory v.
The State of Andhra Pradesh, [1966] 17 STC 624 this Court said:
"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 visualized 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 case, if we may say so with respect, all the authorities, including the
High Court, dealt with the question as a question of law without considering
the relevant factors which would sustain or negative any such agreement .......
A
perusal of the orders of the various authorities and the High Court shows that
a simple question of fact has been sidetracked by copious citations. Whether
there was an agreement to sell the packing materials is a pure question of fact
and that question cannot be decided on fictions or surmises. That is what has
happened in this case. The Commercial Tax Officer invoked a fiction; the,
Assistant Commissioner of Commercial Taxes relied upon the doctrine of "finished
product"; the Appellate Tribunal relied upon surmises; and the High Court,
on the principle of implied agreement.
But
none has tackled the real question. The burden lies upon the Commercial Tax
Officer to prove that a turnover is liable to tax. No doubt he can ask the assessee
to produce the relevant material; and if he does not produce the same, he may
draw an adverse inference against him. But, he must decide the crucial question
whether the packing materials were subject of the agreement of sale, express or
implied. To ascertain the said fact he can rely upon oral statements, accounts
and other documents, personal enquiry and other relevant circumstances such as
the nature and the purpose of the packing materials used." 312 Again, in
Commissioner of Taxes, Assam v. Prabhat Marketing Co., Ltd., [1967] 19 STC 84
this Court accepted as wellfounded submission that the parties may have
intended in the circumstances to sell hydrogenated oil apart from the
containers, and the mere fact that the price of the containers was not
separately fixed would make no difference in the assessment of sales tax, and
went on to observe:
"It
is well-established that 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, the agreement must be supported by money
consideration, and that as a result of the transaction the property should
actually pass in the goods. Unless all the ingredients are present in the
transaction there could be no sale of goods and sales tax cannot be imposed
State of Madras v. Gannon Dunkerley and Co.
(Madras)
Ltd., [1959] S.C.R. 379
The
question as to whether there is an agreement to sell packing material is a pure
question of fact depending upon the circumstances found in each case."
There can be as many different kinds of transactions as the circumstances of
the case may require either by reason of prevailing trade practice or market
conditions or personal convenience, and as human ingenuity may devise for bona
fide reducing the burden of tax. In The State of Karnataka v. Shaw Wallace and
Company Ltd., [1981] 48 STC 169 the High Court of Karnataka pointed out that
there was an agreement to sell the bottles and crates in which the liquor was
conveyed and there was also an agreement in regard to the price of those
containers, and therefore the turnover in regard to those items had to be
determined and the appropriate rate of sales tax had to be charged as provided
in the Karnataka Sales Tax Act. Reference was made to the requirement in the
Karnataka Excise Act, 1966 that the liquor had to be sold in sealed containers
but that, the High Court said, did not automatically lead to the conclusion
that the same rate of sales tax was applicable to containers also. It was
observed that such a presumption could not be made, specially when separate
rates were specified in the Sales Tax Act in regard to the containers and the
contents. In Arlem Breweries Ltd. v. The Assistant Commissioner of Sales Tax, Panaji,
[1983] 53 STC 172 the Panaji Bench of the High Court of Bombay noted that item
22 of the First Schedule to the Goa, Daman and Diu Sales Tax Act, 1964, which
spoke of the item "foreign liquor and 313 India-made foreign liquor"
indicated that the tax was levied only on the liquor and not against the bottle
and liquor or bottled liquor. The sale was of beer and the bottles were treated
separately. It was also pointed out that the agreement by the assessee with the
wholesaler did not create any obligation on the purchasers to return the
bottles nor did it fix any time for their return. The payment of an amount for
the bottles in advance as a term of the sale was referred to as cost of the
bottles and this, the High Court said, constituted the sale price of the
bottles although described as a deposit. In M/s Jamana Flour & Oil Mill (P)
Ltd. v. State of Bihar, AIR 1987 SC 1207 this Court affirmed the finding that
there was an implied agreement of the sale of gunny bags. It said:
"Admittedly
gunny bags are a different commodity and sale thereof is assessable to tax at 4
1/2 %. It is not disputed that the appellant bought gunny bags for packing
wheat products for the purpose of sale. The control order contemplates a net
weight which means that the weight of the bag is included in the price to be
charged by the dealer. Under the Explanation when packing is done in
cloth-bags, a higher rate is admissible. The scheme clearly suggests that the
price of gunny bags is inclusive and where cloth-bag is used, a higher price
over and above what has been provided for ordinary containers is
permitted." It is, therefore, perfectly plain that the issue as to whether
the packing material has been sold or merely transferred without consideration
depends on the contract between the parties. The fact that the packing is of
insignificant value in relation to the value of the contents may imply that
there was no intention to sell the packing, but where any packing material is
of significant value it may imply an intention to sell the packing material. In
a case where the packing material is an independent commodity and the packing material
as well as the contents are sold independently, the packing material is liable
to tax on its own footing. Whether a transaction for sale of packing material
is an independent transaction will depend upon several factors, some of them
being:
1. The
packing material is a commodity having its own identity and is separately
classified in the Schedule;
2.
There is no change, chemical or physical, in the packing either at the time of
packing or at the time of using the content;
314
3. The
packing is capable of being reused after the contents have been consumed;
4. The
packing is used for convenience of transport and the quantity of the goods as
such is not dependent on packing;
5. The
mere fact that the consideration for the packing is merged with the
consideration for the product would not make the sale of packing an integrated
part of the sale of the product.
In one
case, Punjab Distilling Industries Ltd. v. The Commissioner of Income Tax, Simla,
[1959] Supp. 1 SCR 683 where the bottles were sold by the assessee under a
buy-back scheme, the security deposit for the return of the bottles was held to
be merely in the nature of an incentive to the buyer to return the bottles.
Turning
to s. 6C of the Act, it seems to envisage a case where it is the goods which
are sold and there is no actual sale of the packing material. The section
provides by legal fiction that the packing material shall be deemed to have
been sold along with the goods. In other words, although there is no sale of
the packing material, it will be deemed that there is such a sale. In that
event, the section declares, the tax will be leviable on such deemed sale of
the packing material at the rate of tax applicable to the sale of the goods
themselves. 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 read 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.
It is not open to anyone to say that the value of the different components
which have entered into a determination of the price of the goods should be analysed
and separated, in order that different rates of tax should be applied according
to the character of the component (for example, packing material).
What
s. 6C intends to lay down is that even upon such analysis the rate of tax to be
applied to the component will be the rate applied to the goods themselves. And
that is for the simple reason that it is the price of the goods alone which
constitutes the transaction between the dealer and the purchaser. No matter
what may be the component which enters into such price, the parties understand
between them that the purchaser is paying the price of the goods. Section 6C
merely clarifies and explains that 315 the components which have entered into
determining the price of the goods cannot be treated separately from the goods
themselves, and that no account was in fact taken of the packing material when
the transaction took place, and that if such account must be taken then the
same rate must be applied to the packing material as is applicable to the goods
themselves. We find it difficult to accept the contention of the appellants
that a rate applicable to the packing material in the Schedule should be
applied to the sale of such packing material in a case under s. 6C, when in
fact there was no such sale of packing material and it is only by legal
fiction, and for a limited purpose, that such sale can be contemplated. In the
circumstances, no question arises of s. 6C being constitutionally
discriminatory, and therefore invalid.
In the
appeals before us, we find that the High Court has proceeded on the assumption
that the transactions are covered by trade practice and having regard to the
nature of the goods it has inferred that what is charged is the price of the
bottled beer or of cement packed in gunny bags, and reference has also been
made to the Excise Law and the Cement Control Order requiring that the liquor
or the cement, as the case may be, must be sold in bottles or in gunny bags
respectively. We are constrained to observe that no attempt has been made by
the tax authorities to ascertain the facts of each case and to determine what
were the actual ingredients of the contract and the intention of the parties.
Assumptions have been made when what was required was a detailed investigation
into the facts. We have indicated earlier the several possibilities which are
open in cases of this kind, and how the ultimate conclusion can be vitally
affected by the tests to be applied. Because of the lack of adequate and clear
factual material, the High Court also was compelled to proceed on the basis of generalised
statements and broad assumptions. We are unable, in the circumstances, to hold
that the cases can be regarded as disposed of finally. It is regrettable but
the cases must go back for proper findings on facts to be ascertained on fuller
investigation.
In the
circumstances, the appeals are allowed, the impugned judgment and order of the
High Court in the several cases are set aside and the cases are remanded to the
High Court for further consideration and disposal in the light of the observations
made by us. In the case of the writ petitions before us, the assessing
authority will allow the dealer to show cause and thereafter upon evidence led
before it determine the matter. There is no order as to costs.
R.S.S.
Appeals allowed.
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