Controlled packing materials and exempt packing charges under sales tax rules were treated as covering both material and labour elements.

Controlled supply of gunny bags with cement under the Cement Control Order was treated as outside the ordinary sale concept because the packing material price was fixed by law, so its supply was not liable to sales tax. Rule 6(f) of the Madras General Sales Tax Rules was read to exempt separately charged packing charges, and that expression was held to cover both the cost of packing materials and the labour or service element of packing. Later amendments were treated as clarificatory, and the narrower view limiting the exemption to service charges was rejected.

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Issues: (i) Whether the supply of gunny bags along with cement under the Cement Control Order, 1958 amounted to sales liable to sales tax under the Madras General Sales Tax Act, 1959. (ii) Whether, under rule 6(f) of the Rules framed under the Madras General Sales Tax Act, 1959, the separately charged price of packing materials was excluded from taxable turnover.

Issue (i): Whether the supply of gunny bags along with cement under the Cement Control Order, 1958 amounted to sales liable to sales tax under the Madras General Sales Tax Act, 1959.

Analysis: The supply of cement itself was not a sale because it was controlled by the Cement Control Order, 1958. The only question was whether the gunny bags were separately sold. The relevant Government orders showed that the price of the gunny bags used for supplying cement to the State Trading Corporation was fixed by the Government. Where the price of packing material is wholly controlled, the supply of that material does not amount to a sale.

Conclusion: The supply of gunny bags did not amount to sales and was not liable to sales tax.

Issue (ii): Whether, under rule 6(f) of the Rules framed under the Madras General Sales Tax Act, 1959, the separately charged price of packing materials was excluded from taxable turnover.

Analysis: The unamended rule exempted amounts charged separately for packing and delivery services. The expression relating to packing was held to include both the cost of packing materials and labour charges for packing. The later amendments were treated as clarificatory. A contrary view that only service charges were exempt was rejected.

Conclusion: The separately charged price of packing materials was excluded under rule 6(f).

Final Conclusion: The Court upheld the assessees' contentions on both issues, but the appeals were dismissed overall.

Ratio Decidendi: Where the price of packing material is controlled by law, its supply is not a sale, and a rule exempting charges for packing covers both the cost of packing materials and the labour or service element of packing.

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