Sales tax on packing materials turns on the true nature of the transaction, requiring factual inquiry into contract and party intention.

Liability for sales tax on gunny bags and plastic bags used to pack cement under section 5(3-D) of the Karnataka Sales Tax Act depends on the true nature of the transaction, not on a blanket assumption that the packed goods and packing material form a single integrated sale. The assessing authority must examine the contract, the ingredients of the bargain, and the intention of the parties to determine whether the packing material was separately saleable or part of a distinct commercial arrangement. The contrary approach of treating all packed sales as integrated transactions was rejected, and the matter was remitted for fresh factual determination of tax liability.

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Issues: Whether liability to sales tax on gunny bags and plastic bags used for packing cement under section 5(3-D) of the Karnataka Sales Tax Act, 1957 depends on a factual inquiry into the contract and intention of the parties, or whether the packed goods must be treated as an integrated single sale transaction as a matter of law.

Analysis: The provision was construed in the light of the earlier decision upholding a similar deeming provision under section 6-C of the Andhra Pradesh General Sales Tax Act, 1957. The Court found that the Karnataka High Court had erred in treating the sale of goods in containers or packing materials as automatically an integrated sale without examining the actual transaction. The governing principle is that tax liability on packing material depends on the true nature of the bargain, which must be ascertained from the contract, the ingredients of the transaction, and the intention of the parties. Where the packing material is separately saleable or the facts show a different commercial arrangement, the assessing authority must investigate the transaction and cannot proceed on broad assumptions.

Conclusion: The liability under section 5(3-D) cannot be determined by a blanket legal assumption of integrated sale; it must be decided case by case on proper factual inquiry. The High Court's contrary view was set aside, and the matter was remitted for determination on facts.

Final Conclusion: The appeals succeeded to the extent that the impugned judgment was modified and the writ petitions were disposed of with directions for fresh factual determination of tax liability on the packing materials.

Ratio Decidendi: Liability to tax on packing materials used with goods sold in packed form depends on the true nature of the transaction as determined from the contract and surrounding facts, and cannot be fixed by a general presumption of integrated sale.

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