The
Associated Cement Companies Ltd. Vs. Government of Andhra Pradesh & Another
[2006] Insc 13 (4
January 2006)
Ashok
Bhan & S.H. Kapadia Bhan, J.
This
appeal by grant of special leave is directed against the judgment and final
order dated 8.9.2000 passed by the High Court of judicature of Andhra Pradesh
at Hyderabad dismissing the Writ Petition
No.19304 of 1996 filed by the appellants. In the aforesaid writ petition the
appellants had challenged the constitutional validity of Entry 18 of the First
Schedule to the A.P. General Sales Tax Act (for short "the Act")
introduced by A.P.G.S.T. (Amendment) Act, 1996 (Act No.27 of 1996) on the
ground that it is violative of Article 14 of the Constitution of India.
Appellants
are inter alia engaged in the manufacture and sale of cement and have various
factories in different locations in India, including a unit in the State of Andhra Pradesh for manufacturing cement. The appellants have their
marketing division at Secunderabad from where sales of cement are carried on.
It has its warehouses all over the State of Andhra Pradesh. Earlier the State was charging sales tax on the sale of
cement at the rate of 16% as notified by the State Government, which included
the value of the packing material used for packing cement. The value of packing
material is also charged to sales tax on the total sales turnover. As far as
second sale is concerned Sales tax is not paid on the value of packing
materials, as sales tax is leviable only on the first sale of packing
materials. Section 6-C was introduced by Andhra Pradesh General Sales Tax Act
(Amendment Act No.11 of 1984) which reads as under:- "6-C Levy of tax on
packing material :- - 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." The validity of this provision
was challenged and this 1989 (3) SCC 262 interpreted this Section to mean that
"Section 6-C can at best be regarded as a provision by way of
clarification of existing legal situation". The Court pointed out
"Section 6-C merely clarifies and 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. 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 Section 6-C, 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." With these observations the matter was remanded to the High
Court for fresh consideration and disposal in the light of the observations
made in the Judgment. In the earlier part of this judgment the Court after
referring to the various decisions summarized the legal position vis-`-vis
sales tax on turnover relatable to packing material thus:
"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." The deeming provision as introduced by Act No.11
of 1984 by the legislature by this interpretation was reduced to mere
insignificance. This interpretation put the Assessing and Appellate Authorities
to the need of making elaborate enquiries on the question whether there was an
agreement express or implied for the sale of packing material and whether any
artificial or colourable devices were adopted by the assessee to split up the
transaction so as to take the plea that there was a separate contract for the
sale of packing material. The State Legislature then introduced Section 6-C in
a modified form. The following provision was substituted by Andhra Pradesh
Amending Act 22 of 1995 with effect from 1.4.1995. 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." In order to follow up the amendment 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 1.8.1996:- "S.No. Description Point of
Rate of Effective of goods levy tax from
-
Cement:--
-
Where the sale
price At the 16 paise of cement includes point of in the 1.8.1996 the value of
packing first sale rupee material
-
Where the
packing material and cement are sold separately -do- 20 paise and/or the sale
price in the 1.8.1996 of cement does not rupee include the value of packing
material" This amendment was put to challenge by the appellants before the
High Court. By the impugned order the High Court has rejected the challenge and
upheld the constitutional validity of the aforesaid provision.
Yet
another step was taken by the Legislature in the year 1997 by substituting the
Entry relating to containers by the following entry dealing with the packing
material of various types. This was done by Act 30 of 1997 with effect from
12.5.1997 in order to invigorate the charging provision read with Section 6-C
to the desired extent. The substituted Entry 19 reads as follows:
"S.No.
Description Point of Rate of Effective of goods levy tax from
19.
Packing material that At the point is to say Bottles of of first sale all types
whether made in the State of Glass, Plastic
or any fibre or any other material.
-
when sold
without -do- 4 paise in 12.5.1997 contents the rupee
-
when sold
containing do- The rate at contents which the content is liable to tax"
Simultaneously, the State Government, in order to see that the value of the
packing materials is not taxed twice, exercised the power conferred under
Section 9(1) of the Act and provided for set off of the tax paid on packing
materials. It was provided that the tax levied and collected on packing
materials in respect of sale or purchase of such materials inside the State
shall be reduced from the tax payable on the packed goods.
By
virtue of the amendments introduced in the Act and the Schedule the sales tax
on cement is now levied at the rate of 16% where the sale price of cement
includes the value of packing material and if the cement is sold along with
separate sale of packing material for a separate price, sales tax is charged at
the rate of 20%. According to the appellants, the same commodity i.e. the
cement cannot be treated and made liable to pay differential duty of tax
depending upon how the sale of cement is effected, i.e., by effecting the sale
of cement and packing material separately.
The
appellants have been showing the value of cement and the value of the packing
material separately while preparing their bills. The appellants' case as set
out in para 4 of the affidavit filed in support of the writ petition reads as
under:- "The petitioner Company has been showing the value of cement and
the value of packing material separately while preparing the bills. Copy of the
bills are filed herewith. The purpose of showing separately the value of cement
and the packing material which is used for packing cement is only for the
purpose of claiming exemption for the packing material as sales tax is not
levied on second sales of packing material as per the Act. By virtue of the
Ordinance Cement for which tax is levied is 16% and when Cement is sold with
packed material it is 16% when billed along with cement, and if the very same
cement is billed separately i.e., cement and packing material it will be 20%.
That means the same cement is liable for differential levy of tax depending on
how the bill is prepared." According to the appellants, the appellants
sell cement in bulk which is not packed at all. They are loaded into special
type of wagons, and it is the loose cement which is sent without being packed
to various companies such as Hyderabad Industries Limited who purchase large
quantity of cement in bulk in unpacked condition for the manufacture of
Asbestos Sheets and pipes. There is no packing material as the cement is not
packed. According to the appellants the same cement cannot be made liable for
differential levy of tax depending on how the bill is prepared. The same
product cannot be classified differently and charged with different rates of
sales tax. It was further averred that there was no distinction between the
cement sold in packed condition or cement which is sold in loose condition
without being packed.
That a
distinction in the rate for charging sales tax could not be made dependent on
the method and manner of preparation of bills as to whether the cement is sold
along with packing material or the customer is billed separately for the value
of cement and the packing material. The method of billing would not alter the
character of cement which remains one and the same commodity. It was also
submitted that there was no justification for making a distinction between the
commodities in the same category. This was violative of Article 14 of the
Constitution and thus liable to be struck down. In support of its submissions
the appellants relied upon two State of Karnataka, 1996 (2) SCC 88.
The
High Court negatived the contentions raised by the appellants and concluded
that there was nothing anomalous or incongruous in prescribing the same rate of
tax for the packing materials as well as the goods packed irrespective of the
fact whether they are charged for and sold separately.
There
was no invidious discrimination and that the present case was not a case in
which species of the genus was picked up for higher taxation without apparent
justification. It was held that:
"The
present case is not a case in which a species of the genus is picked up for
higher taxation without apparent justification. The charge of discrimination
was upheld in Ayurveda Pharmacy's case (supra) having regard to 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 dependant 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 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 Ayurveda Pharmacy case (supra)."
Relying heavily on the decision in Ayurveda Pharmacy case (supra) Mr. Rajiv Shakdher,
learned counsel for the appellants contended that the same commodity i.e.
cement could not be subjected to different rates of taxation depending on
whether the cement and packing material are sold separately. It was not
permissible to the respondents to levy tax at the rate of 16% when the same is
billed along with packing material and to tax the same commodity (cement) at
the rate of 20% when the cement and its packing material are billed separately.
It was submitted that Clause B of Entry 18 of the First Schedule of Andhra
Pradesh Act is discriminatory and irrational. It levies differential tax rate
higher than 16% on the same commodity i.e. cement depending on the fact that
the appellants have been claiming a separate sale of packing material and
thereby showing the value of cement and the value of packing material
separately while preparing the bills.
It was
submitted that the discrimination is writ large on the face of the impugned
Entry in the taxation schedule and such discriminatory treatment was not
justified. As against this, Mr. Anoop Choudhary, learned senior advocate
appearing for the respondent contended that the provision was not
discriminatory. The object was to see that the tax revenue on packing material
is not lost to the State by reason of adoption of artificial tax planning
devices. According to him Ayurveda Pharmacy's case (supra) was distinguishable
and the prescription of different rates of tax in the peculiar circumstances
obtained in cement and liquor trade was not impermissible. He strongly relied
upon the decision of this SCC 641 in which this Court considered the provisions
of sub- Sections (5) and (6) of Section 5 of the Kerala General Sales Tax Act
which according to him are pari materia with Section 6-C of the Andhra Pradesh
General Sales Tax Act introduced by Act No.22 of 1995.
SCC
189. Hidayatullah, J. speaking for Constitution Bench spelt out the principles
governing the application of Article 14 to the taxing statutes. It was held
that the State does not have to tax everything in order to tax something. The
state enjoys a wide discretion in the matters of taxation and enjoys more
freedom for classifying the objects to be taxed and the rates of taxation. The
burden for proving discrimination is always heavy on the person who alleges
discrimination and heavier still when a taxing statute is under attack. That
the State can validly pick and choose one commodity for taxation and the same
is not open to attack under Article 14 on the ground that the same result must
follow when the State picks out one category of goods and subjects it to the
taxation. Relevant portions at para 15 of this judgment read as under:-
"15. We may now state the principles on which the present case must be
decided.
These
principles have been stated earlier but are often ignored when the question of
the application of Article 14 arises.
One principle
on which our Courts (as indeed the Supreme Court in the United States) have always acted, is no where
better stated than by Willis in his "Constitutional Law" page 587.
This is how he put it :
"A
State does not have to tax 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 Indian Tobacco Co. v. State
of Andhra Pradesh (1963) 1 SCR 404 at page 409. 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. If production must always be taken into account
there will have to be a settlement for every year and the tax would become a
kind of income-tax.
16.
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 411 approving the dictum of the Supreme
Court of the United
States in Madden v.
Kentucky : ((1940) 309 US 83; 84 L Ed.
590)
"In taxation even more than in other fields, Legislatures possess the
greatest freedom in classification The burden is on the one attacking the
legislative arrangement to negative every conceivable basis which might support
it." Tax Officer, AIR 1963 SC 591, a Constitution Bench of this Court
while pointing out the taxation law is not an exception to the doctrine of
equality, clarified:
"But
in the application of the principles, the Courts, in view of the inherent
complexity of fiscal adjustment of diverse elements, permit a larger discretion
to the Legislature in the matter of classification, so long it adheres to the
fundamental principles underlying the said doctrine. The power of the
Legislature to classify is of 'wide range and flexibility' so that it can
adjust its system of taxation in all proper and reasonable ways".
SCC
223, another decision the Constitution Bench of this Court observed:-
"Even so, taxing statutes have enjoyed more judicial indulgence. This
Court has uniformly held that classification for taxation and the application
of Article 14, in that context, must be viewed liberally, not
meticulously" Ltd. & others, 2004 (10) SCC 201, a Constitution Bench
by a majority of 4:1 held that the measure/mode/machinery employed for
assessing a tax must not be confused with the nature of the tax. A tax has two
elements: first, the person, thing or activity on which the tax is imposed (the
subject of tax), and second, the amount of tax. The subject of tax is different
from the measure of levy. The amount of tax may be measured in many ways but
the distinction between the subject-matter of a tax and the standard by which
the amount of tax is measured must not be lost sight of. While the subject of
tax is clear and well defined, the amount of tax is capable of being measured
in many ways for the purpose of quantification. Devising the measure of
taxation is a far more complex exercise than defining the subject of tax and
therefore the legislature has to be given much more flexibility for devising
the measure of taxation. It was observed in para 33 as under:- "We now
proceed to enter a deeper dimension in the field of tax legislation by
considering the problem of devising the measure of taxation. This aspect has
been dealt with in detail in Union of (1983) 4 SCC 210. Tracing the principles
from the leading authority of A reference under the Government of Ireland Act,
1920 and Section 3 of the Finance Act (Northern Ireland) 1934, Re. 1936 AC
Province of East Punjab, 1948 FCR 207, and treading through the law as it has
developed through judicial pronouncements one after the other, this Court has
made subtle observations therein. It has been long recognized that the measure
employed for assessing a tax must not be confused with the nature of the tax. A
tax has two elements: first, the person, thing or activity on which the tax is imposed,
and second, the amount of tax. The amount may be measured in many ways; but a
distinction between the subject matter of a tax and the standard by which the
amount of tax is measured must not be lost sight of.
These
are described respectively as the subject of a tax and the measure of a tax.
It is
true that the standard adopted as a measure of the levy may be indicative of
the nature of the tax, but it does not necessarily determine it. The nature of
the mechanism by which the tax is to be assessed is not decisive of the
essential characteristic of the particular tax charged, though it may throw
light on the general character of the tax.
It was
observed in para 126 as under :-
-
the subject of
tax is different from the measure of the levy;
-
merely because a
tax on land or building is imposed by reference to its income or yield, it does
not cease to be a tax on land or building. The income or yield of the
land/building is taken merely as a measure of the tax; it does not alter the
nature or character of the levy. It still remains a tax on land or building.
No one
can say that a tax under a particular entry must be levied only in a particular
manner. The legislature is free to adopt such method of levy as it chooses. So
long as the essential character of levy is not departed from within the four
corners of the particular entry, the manner of levying the tax would not have
any vitiating effect;
xxx xxx
xxx
-
it is
permissible to classify land by reference to its user as a separate unit for
the purpose of levy of cess. Tea estate, as a separate category of land, is a
valid classification;" It was further observed in para 129, sub para 3 as
under:- "(3) The nature of tax levied is different from the measure of
tax. While the subject of tax is clear and well defined, the amount of tax is
capable of being measured in many ways for the purpose of quantification. Defining
the subject of tax is a simple task; devising the measure of taxation is a far
more complex exercise and therefore the legislature has to be given much more
flexibility in the latter field. The mechanism and method chosen by Legislature
for quantification of tax is not decisive of the nature of tax though it may
constitute one relevant factor out of many for throwing light on determining
the general character of the tax." 106, this Court has laid down that the
Courts must show judicial restraint while considering the scope of economic
legislation as well as tax legislation and unless the provision is manifestly
unjust or glaringly unconstitutional the same should not be interfered with.
There is always a presumption in favour of the constitutional validity of any
legislation unless the same is set aside for breach of the provisions of the
Constitution. Citing with the approval the decision of this (4) SCC 675, it was
held that every legislation particularly in economic matters, is essentially
empiric and based on experimentation. It cannot be struck down merely because
there is a possibility of abuse. The same can be set right by the legislature
by passing amendments. The Courts therefore, should adjudge the
constitutionality of such legislation by the generality of its provisions. Laws
relating to economic activities should be viewed with greater latitude than
laws touching civil rights such as freedom of speech, religion etc.
In
Premier Breweries 's case (supra), a three-Judge Bench of this Court repelled
the contention of the assessee that 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 as the containers were separately billed
and charged for. Interpreting sub-sections (5) and (6) of Section 5 of the Kerala
General Sales Tax Act it was held that underlying idea behind these rules is
that packed goods are to be taxed as composite units and therefore in
calculating the turnover of the goods, the turnover of the containers will have
to be included. The appropriate rate of tax will be the rate payable on the
goods and it will not make any difference, if the containers are shown to have
been sold and charged separately.
In the
Premier Breweries 's case (supra), the assessee sold Indian-made foreign liquor
in bottles packed in cardboard cartons. As the assessee charged its customers
separately for the liquor and the cartons the Assistant Collector held the
cartons to be taxable @ 8% under Entry 7 to Schedule I of the Kerala General
Sales Tax Act, 1963. The Deputy Collector under the Act exercising his revisional
jurisdiction under Section 35 set aside the Assistant Collector's order and
invoking Section 5 (5) of the Kerala General Sales Tax Act held the cartons to
be taxable at the rate the liquor was taxable.
The
view of the Deputy Commissioner was upheld by the Appellate Court and the High
Court. Before this Court it was contended by the assessee that since the
appellants had charged, and the customers paid, for the liquor and cartons
separately, in the presence of Entry 97 in Schedule I to the Act prescribing a
specific rate of tax for cartons, the value of the containers could not be
included in the value of the liquor for the purpose of calculating the assessee's
turnover. It was further contended that the sales tax under the Kerala General
Sales Tax Act being a single-point tax and tax having already paid on the
cartons by the manufacturers thereof, the cartons could not be taxed again at
the time of the sale of beer.
Dismissing
the appeal this Court pointed out in para 6 that:
"The
language of sub-sections (5) and (6) of Section 5 is clear and unambiguous.
These
two sub-sections deal with the method of valuation of packed goods and the rate
of tax payable thereon. The rules laid down are:
-
Where goods sold
are contained in a container or packed in any packing material, the rate of tax
payable on the containers shall be the same as that applicable to the goods
contained or packed.
-
This will be the
position even if price of the containers or packing materials is charged
separately.
-
The turnover of
the goods will include the turnover in respect of containers or packing
materials in which the goods are contained or packed.
-
The point of
levy of the tax on the containers or the packing materials will be the same as
applicable to the goods contained or packed.
-
f the sale or
purchase of goods contained in a container or packed in a packing material is
exempted from tax, then, no tax shall be payable on the sale or purchase of the
containers or packing materials in which the goods are sold." It was then
observed at Para 7 thus:
-
"The underlying idea behind these rules is that packed goods are to be
taxed as composite units. In calculating the turnover of the goods, the
turnover of the containers will have to be included.
The
appropriate rate of tax will be the rate payable on the goods. It will not make
any difference, if the containers are shown to have been sold and charged
separately. The logical corollary to this principle is that when the goods are
exempted from tax, no tax is leviable on the containers. This will be the
position even when the goods and the containers are sold and charged
separately".
Further
in para 8 it was observed:
"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 purpose
of imposition of tax, the turnover of goods will have to be calculated by the
including therein the turnover of the packages or the containers. The rate of
tax applicable to the turnover so calculated will be the rate payable on the
goods contained in the containers. It follows that if bottled beer is sold in
containers, the tax payable on beer will be the appropriate rate of tax payable
on the turnover calculated in the manner stated hereinabove. It has not been
found by any of the authorities who heard the case that the carton were
specially provided for protection of the bottles and bottled beer usually was
not delivered in cartons even in cases of bulk sales. The argument based on
secondary packing is misconceived." After referring to Raj Steel case
(supra), it was observed that the difficulty arising out of the restricted
meaning given to a deeming clause in Section 6-C of the A.P. Act had been
obviated by specific provisions of Section 5(5) of the Kerala Act by providing
that the turnover of the goods shall include the turnover in respect of packing
materials or containers. It was observed in para 16:
"This
difficulty arising out of the restricted meaning given to the deeming clause in
Section 6-C of the Andhra Act has been obviated by specific provisions of
Section 5(5) of the Kerala Act by providing that the turnover of the goods will
include the turnover in respect of the packing materials or the containers. The
containers or the packing materials will be taxed at the same point and at the
same rate at which the goods are to be taxed. This rule will apply
"whether the price of the containers or the packing materials is charged
separately or not." Therefore, even in a case where the containers are
separately sold, the turnover of the goods will include the turnover of the
containers and the appropriate rate of tax on such turnover will be the rate of
tax payable on the goods." Referring to the decision in Vasavadatta
Cements v. State of Karnataka, 1996 (2) SCC 88, wherein this
Court had followed the principle laid down in Raj Steel case (supra) it was
pointed out that:
"...in
Vasavadatta case (supra) this Court overlooked the marked dissimilarity between
Section 6-C of the Andhra Act and Section 5(3-D) of the Karnataka General Sales
Tax Act. We are also of the view that sub-sections (5) and (6) of the Kerala
General Sales Tax Act will have to be construed uninfluenced by the decision of
the Court in Raj Steel's case where Pathak, C.J. construed the deeming
provisions in Section 6-C of the Andhra Act in a narrow sense. Section 6-C did
not contain any specific provisions for including the turnover of the
containers of the packing materials in the turnover of the goods." Section
6-C as amended by Act 22 of 1995 is almost in pari materia to sub-sections (5)
and (6) of Section 5 of the Kerala General Sales Tax Act. Sub-sections (5) and
(6) of Section 5 of the Kerala Act reads as under:
"5.
(5) Notwithstanding anything contained in sub-section (1) or sub- section (2),
but subject to sub-section (6), where goods sold are contained in containers or
are packed in any packing materials, the rate of tax and the point of levy
applicable to the containers or packing materials, as the case may be, shall,
whether the price of the containers or 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.
(6)
Where the sale or purchase 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 (supra), which is a three- Judge Bench case, the distinction
in Raj Steel's case (supra) as well as in Vasavadatta's case (supra), which are
two-Judge Bench cases, has been pointed out. We are in respectful agreement
with the view taken by three-Judge Bench in Premier Breweries' case (supra),
which has interpreted sub- sections (5) and (6) of Section 5 of the Kerala
General Sales Tax Act, 1963 which is in pari materia with the Section 6-C as
introduced by amendment Act 22 of 1995.
(2)
SCC 285, which is the sheet anchor of the appellants' submission the facts
were: that the appellants were manufacturers of Ayurvedic drugs and medicines,
including Arishtams and Asavas. Arishtams and Asavas contain alcohol, which
according to the assessee was essential for the effective and easy absorption
of the medicine by the human system and also because it acted as a
preservative. While all other patent or proprietary medicinal preparations
belonging to the different systems of medicines were taxed at the rate of 7%
only, Arishtams prepared under the Ayurvedic system were made subject to a levy
of 30%. . The appellants filed the writ petitions in the High Court of Madras
challenging the levy at 30% on Arishtams and Asavas, being violative of Article
14 as well as Article 19 (1)(g) of the Constitution of India. High Court
dismissed the writ petition by observing that the imposition of the rate of 30%
on the sale of Arishtams and Asavas must be regarded principally as a measure
for raising revenue, and repelled the argument that the rate of tax was
discriminatory or that Article 19(1)(g) was infringed.
Reversing
the decision it was held by this Court that the two preparations, Arishtams and
Asavas, were medicinal preparations, and even though they contained a high
alcohol content, so long as they continue to be identified as medicinal
preparations they must be treated, for the purposes of the Sales Tax Law, in
like manner as medicinal preparations generally, including those containing a
lower percentage of alcohol. In the said case the charge of discrimination was
upheld having regard to the inherent nature of the commodity and its similarity
with others falling within the same category.
But in
the present case, the rate of tax on cement is made dependant on whether the
sale price of cement includes the cost of packing materials.
The
Legislature distinguished between two categories of sale of cement recorded by
the dealer as in these two categories there is considerable variation in the
turnover base.
In the
category of transactions falling in Clause (a) Entry 18 taxable turnover
includes the value of the cement and the value of the packing material. The
category of transactions falling under clause (b) the taxable turnover includes
the value of the cement only. It does not include the value of the packing
material. So the turnover base under Clause (a) and Clause (b) differs. The
turnover base under Clause (b) is inevitably higher than the turnover base
would be equivalent to the value of the packing material. The discrimination
does not arise for any dealer because the dealer can avail any one of the
option available in Clauses (a) and (b). If the dealer sells cement along with
the packing material and the sale price includes value of packing material he
continues to pay tax at the previous rate, i.e. 16%. If the dealer opts to sell
the packing material and cement separately he has to pay tax at higher rate
i.e., 20% on cement only. The dealer is not left without any option. He can
exercise one of the two options and pay the tax accordingly.
Moreover,
as per G.O. Ms. No. 374 Rev dated 25.04.1987, tax levied in the State on the
packing material used for packing the goods shall be reduced from the tax
payable by a dealer at the rate applicable to cements under Section 6C on the
turnover of sale of such goods and packing material. If the appellants
purchased the packing material from any dealer within the State and paid tax at
16% on cement under Clause (a) he would be entitled to claim set off of the tax
paid by him on such packing material at the time of its purchase inside the
State. High Court rightly pointed out that the imposition of 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. That contrary to the normal business
practices and modalities of sale of cement, the manufacturers had started
bifurcating the price of cement and packing material to make it to appear that
there was separate sale of each of them, so that they need not have to pay the
higher tax on the component of packing material. It is common knowledge that
the cement, barring some bulk supplies, is ordinarily sold in packed condition,
i.e, either gunny bags or HDPE bags. 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.
In Hyderabad Deccan Cigarette Factory v. State of A.P., (1966) 17 STC 624 (SC), it was
observed:
"In
the instant case, it is not disputed that there were no express contracts of
sale of the packing materials between the assessee and its customers. On the
facts, could such contracts be inferred? The authority concerned should ask and
answer the question whether the parties in the 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."
It was further held:
"...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..." Going by what has been held in the
aforesaid case the gunny bag or the HDPE bag is used to facilitate the
transporting and marketing. The value of bag would normally be a minor
percentage of the value of cement. In such a situation, it would be difficult
to infer a separate agreement for the sale of bags used for packing the cement.
High Court was right in observing that the manufacturers, in order to claim the
tax benefit had resorted to the modus operandi of the sale of containers (bags)
by bifurcating the price. That when evidence is created prima facie supporting
the plea of separate sale of packing material, it would be difficult for the
taxing authorities to establish otherwise even though the design and purpose of
creating such evidence by the process of billing etc., is quite evident. That
in every case, elaborate enquiry will have to be made to decide on which side
the transaction falls.
To
obviate such uncertainties and long drawn enquiries, the Legislature has laid
down a straight formula prescribing the rate of tax on cement dependent on the
two categories envisaged in Clauses (a) and (b) of Entry 18. It is
rationalization of the entries and is regulatory in nature.
If
that be the situation, we do not find any basis to hold that such
classification of the same commodity is impermissible and would amount to
discrimination being violative of Article 14 of the Constitution of India.
For
the reasons stated above, we do not find any merit in the appeal and dismiss
the same leaving the parties to bear their own costs.
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