Contract terms and milling by-products determine sales tax liability on gunny bags and bran turnover.

Contractual terms controlled the tax treatment of gunny bags used in the milling arrangement, because the agreement separately accounted for the cost of gunnies, sales tax on gunnies, and milling charges in computing profit; on that basis, the turnover relating to gunny bags was treated as liable to sales tax. Bran generated during the milling process was also treated as part of the assessee's taxable turnover, as it arose in the assessee's operations and was not shown to have been delivered back to the principal. The Tribunal's view on both items was upheld, and the tax revision cases were dismissed.

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Issues: (i) whether the turnover relating to the value of gunny bags was liable to sales tax; and (ii) whether the turnover relating to bran generated in the milling process was assessable in the assessee's hands.

Issue (i): whether the turnover relating to the value of gunny bags was liable to sales tax.

Analysis: The agreement between the assessee and the Food Corporation of India, particularly Schedule VI, showed that in working out the margin of profit the cost of gunnies, sales tax on gunnies, and milling charges were separately provided for and taken into account. The liability could therefore be determined from the contractual terms without examining the asserted agency character.

Conclusion: The turnover relating to the value of gunny bags was rightly held assessable to sales tax, against the assessee.

Issue (ii): whether the turnover relating to bran generated in the milling process was assessable in the assessee's hands.

Analysis: The bran was generated in the milling operation undertaken by the assessee, and there was no case that it was delivered back to the principal. In these circumstances, there was sufficient material to treat the turnover relating to bran as part of the assessee's taxable turnover.

Conclusion: The turnover relating to bran was rightly held assessable in the hands of the assessee, against the assessee.

Final Conclusion: The Tribunal's findings on both items were upheld and the tax revision cases were dismissed.

Ratio Decidendi: Where the contract itself shows that the relevant items are separately accounted for in computing profit, and where milling by-products are not returned to the principal, the corresponding turnovers are taxable in the assessee's hands.

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