Tax on packing material depends on proof of sale contract, and a circular cannot replace case-specific factual inquiry.

Packing material is taxable only where the facts establish an express or implied contract for sale of that material, and the taxing authority must prove such sale from the surrounding circumstances. Mere use of gunny bags for packing sugar, or sale of sugar in packed condition, is not enough by itself to attract tax. A departmental circular cannot substitute for case-specific factual enquiry or treat an earlier decision as universally applicable where that decision turned on its own facts and a price-control order. The circular was therefore unsustainable, and taxability had to be examined afresh in each assessment on proper evidence.

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Issues: (i) whether the circular issued by the Commissioner, Trade Tax, directing assessment of tax on gunny bags packed with sugar on the strength of an earlier decision could be sustained; (ii) whether gunny bags used for packing sugar were taxable in every case or only where the facts showed an express or implied contract of sale of the packing material.

Issue (i): Whether the circular issued by the Commissioner, Trade Tax, directing assessment of tax on gunny bags packed with sugar on the strength of an earlier decision could be sustained.

Analysis: The circular treated the earlier single-judge decision as governing all cases and required the assessing authorities to follow it. The earlier decision itself rested on the factual matrix of that case and on a price-control order that specifically indicated inclusion of packing cost. Such a circular could not control the statutory duty of the assessing authority to examine the facts and apply the correct legal test in each matter.

Conclusion: The circular was unsustainable and liable to be quashed.

Issue (ii): Whether gunny bags used for packing sugar were taxable in every case or only where the facts showed an express or implied contract of sale of the packing material.

Analysis: Taxability of packing material depends on whether the packing material itself is the subject of an express or implied sale contract. The burden lies on the taxing authority to establish such sale from the facts and surrounding circumstances. Mere use of gunny bags for packing sugar, or the fact that sugar is sold in packed condition, does not by itself establish that the bags were sold for consideration. The relevant price-fixation and packing orders in this case did not show that the value of the bags was necessarily included in the sugar price, so each assessment required independent factual enquiry.

Conclusion: Gunny bags were not taxable as a matter of general rule, and the question had to be decided afresh on the facts of each case.

Final Conclusion: The writ petitions succeeded in part by invalidating the departmental circular and by setting aside the existing assessment and recovery actions, while leaving the revenue authorities to re-examine taxability case by case on proper factual inquiry.

Ratio Decidendi: Packing material can be subjected to tax only when the facts establish an express or implied contract of sale of that packing material, and a general administrative direction cannot replace the required factual determination in each case.

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