Implied sale of packing materials upheld where buyer instructions and packing cost showed part of the bargain.

Where packing materials are used in accordance with the foreign buyer's specific instructions and their cost is not insignificant, an implied sale of those materials may be inferred even without an express contract. The court applied the test whether the packing formed part of the bargain, rather than being a merely incidental or routine vehicle for transport, and held that the facts supported an implied sale. On that footing, the levy of purchase tax on the assessee's purchases of packing materials could not survive, because the basis for the differential tax demand fell away. The reference was therefore answered in favour of the assessee and the contrary tax consequence was set aside.

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Issues: (i) Whether, on the facts, there was an implied sale of packing materials to the foreign buyer when no formal agreement for sale of such materials existed. (ii) Whether the levy of purchase tax on the assessee's purchases of packing materials was sustainable.

Issue (i): Whether, on the facts, there was an implied sale of packing materials to the foreign buyer when no formal agreement for sale of such materials existed.

Analysis: The relevant test was whether the packing material formed part of the bargain between the parties, even without an express contract. Specific packing instructions were given by the foreign buyer, and the packing was not of a routine or merely incidental type. The cost of packing materials was about 9 per cent of the export value, which could not be treated as insignificant. Packing used as a cheap and convenient vehicle of transport would not imply a sale, but these facts did not justify that conclusion.

Conclusion: The first issue was answered against the Revenue and in favour of the assessee; there was an implied sale of the packing materials.

Issue (ii): Whether the levy of purchase tax on the assessee's purchases of packing materials was sustainable.

Analysis: The second question was consequential to the first. Once the packing materials were held to have been sold in the course of export arrangements by implication, the basis for treating the assessee as having violated the undertaking and for levying the differential purchase tax did not survive.

Conclusion: The levy of purchase tax was not sustainable and the issue was answered in favour of the assessee.

Final Conclusion: The reference was answered for the assessee, and the tax consequence arising from the Tribunal's contrary view was set aside.

Ratio Decidendi: Where packing materials are used according to the buyer's specific instructions and their cost is not insignificant, an implied contract of sale of the packing materials may be inferred even without an express agreement, so the materials cannot be treated as merely a cheap and convenient vehicle of transport.

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