Packing materials test and proportional penalty under sales tax law turn on ordinary use and bona fide conduct.

Tins used to store coconut oil were treated as containers, not packing materials, because the common parlance test looks to the ordinary use of the article; concessional tax under section 5(7) of the Kerala General Sales Tax Act was therefore unavailable. Penalty under section 45A was required to be proportionate to the gravity of the default and surrounding circumstances, not imposed mechanically at the maximum rate. Where the dealer's claim was bona fide and there was no material of fraud or dishonesty, the penalty could be reduced even though the substantive tax concession claim failed.

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Issues: (i) whether tins purchased by the assessee for storing coconut oil could be treated as packing materials so as to qualify for concessional tax under section 5(7) of the Kerala General Sales Tax Act, 1963; (ii) whether the penalty imposed under section 45A of the Act was liable to be sustained in the quantum fixed by the revenue authorities.

Issue (i): whether tins purchased by the assessee for storing coconut oil could be treated as packing materials so as to qualify for concessional tax under section 5(7) of the Kerala General Sales Tax Act, 1963.

Analysis: Section 5(7) granted concessional tax only for industrial raw materials or packing materials sold for packing finished products inside the State for sale, and the benefit was unavailable where the finished products were not liable to tax or were exported. The expression had to be understood in its setting and on the basis of the use to which the article was ordinarily put. Applying the common parlance test, tins used for storing and containing coconut oil were containers and not packing materials. The mere fact that goods were put into tins for transport or storage did not convert the tins themselves into packing materials for the purpose of the provision.

Conclusion: the assessee was not entitled to concessional treatment under section 5(7) in respect of the tins, and the assessee failed on this issue.

Issue (ii): whether the penalty imposed under section 45A of the Act was liable to be sustained in the quantum fixed by the revenue authorities.

Analysis: Penalty under section 45A was not to be levied mechanically at the maximum rate; the quantum had to bear a proportion to the gravity of the default and the surrounding circumstances. The assessee had used declaration forms in the context of a newly introduced concession and the claim was found to be bona fide, without material to establish a fraudulent or dishonest intention. At the same time, the liability to penalty was not eliminated altogether because the assessee's claim on the merits was rejected. The proper course was to reduce the penalty to a modest proportion of the tax sought to be evaded.

Conclusion: the penalty was reduced to 10 per cent of the tax sought to be evaded, and the original penalty orders were modified accordingly.

Final Conclusion: the challenge to the levy failed on merits as to entitlement to concessional tax, but succeeded to the limited extent of substantial reduction of the penalty on the ground of bona fide conduct and proportionality.

Ratio Decidendi: whether an article is a packing material under the sales tax concession provision depends on its ordinary use in common parlance, and penalty under a fiscal penal provision must be proportionate to the offence and cannot be imposed mechanically at the maximum rate where the dealer acted bona fide.

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