Inter-State sale exemption for packing materials used to despatch eggs was upheld under the Kerala sales tax scheme.

Section 5A of the Kerala General Sales Tax Act applies where purchased goods are consumed, otherwise disposed of, or despatched outside the State in circumstances where no tax is payable under section 5; however, section 5A(1)(c) excludes purchases where the out-of-State despatch is a direct result of an inter-State sale or purchase. Packing materials used to despatch eggs sold in inter-State trade were treated as part of the inter-State transaction because delivery was contemplated only in properly packed form, so property in the packing materials passed with the goods. On that basis, the purchases were covered by the statutory exception and no tax was payable on the packing materials.

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Issues: Whether the purchase turnover of packing materials used for despatch of eggs sold in inter-State trade or commerce was liable to tax under section 5A of the Kerala General Sales Tax Act, and whether section 5A(1)(c) exempted such purchases from tax.

Analysis: Section 5A is attracted where goods are purchased in circumstances in which no tax is payable under section 5 and the purchased goods are consumed, otherwise disposed of, or despatched outside the State. The exception in clause (c) applies where despatch outside the State is a direct result of a sale or purchase in the course of inter-State trade or commerce. The eggs were sold in inter-State trade, the packing materials were necessary for such despatch, and the parties must be taken to have contemplated delivery of the goods properly packed. In such circumstances, property in the packing materials passes with the goods, and the despatch of the packing materials is treated as part of the inter-State transaction.

Conclusion: Section 5A(1)(c) applied, and no tax was payable on the packing materials used for despatch of the eggs in inter-State trade or commerce.

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