1997 (1) TMI 509 - HC - VAT and Sales Tax

Inclusion of Packing Materials in Taxable Turnover Upheld by High Court

The High Court held that the value of gunny bags used for packing groundnut kernel and rice should be included in the taxable turnover as the transactions ... - Issues Involved:1. Taxability of gunny bags used for packing groundnut kernel and rice.2. Existence of an implied agreement for the sale of gunny bags.3. Inclusion of the value of gunny bags in the taxable turnover.Detailed Analysis:1. Taxability of Gunny Bags Used for Packing Groundnut Kernel and Rice:The assessing authority found that the assessee had effected inter-State sales of groundnut kernel and rice, and estimated the value of gunny bags used for packing these goods, assessing the estimated value to tax under the Central Sales Tax Act, 1956. The Tribunal, however, held that the gunny bags used as containers were not chargeable to sales tax, as there was no express or implied agreement to sell the packing materials. The High Court disagreed with the Tribunal, holding that the value of the gunny bags should be included in the taxable turnover, as the transactions were composite sales of both the goods and the packing materials.2. Existence of an Implied Agreement for the Sale of Gunny Bags:The Tribunal concluded that there was no evidence of an implied agreement to sell the gunny bags. The High Court, however, found that the burden of proof on the Revenue to establish an implied agreement had been discharged. The Court referred to the Supreme Court's observations in Raj Sheel v. State of Andhra Pradesh, which clarified that even if there is no actual sale of packing material, it can be deemed to have been sold with the goods. The Court also noted that the assessee was a dealer in gunny bags and that the value of the gunny bags was significant in relation to the total sale price, supporting the existence of an implied agreement.3. Inclusion of the Value of Gunny Bags in the Taxable Turnover:The High Court emphasized that the transactions were composite in nature, involving the sale of both the goods and the packing materials. The Court cited several precedents, including State of Tamil Nadu v. V.V. Vanniaperumal & Co., which held that the value of containers should be included in the taxable turnover. The Court also referred to the Supreme Court's decision in Ramco Cement Distribution Co. Pvt. Ltd. v. State of Tamil Nadu, which held that packing charges form part of the 'sale price' as defined in section 2(h) of the Central Sales Tax Act, 1956. Therefore, the value of the gunny bags used for packing groundnut kernel and rice was held to be taxable.Conclusion:The High Court allowed the revision petition, setting aside the Tribunal's order and restoring the orders of the assessing authority and the Appellate Assistant Commissioner. The Court concluded that there was an implied agreement to sell the gunny bags, and that the value of the gunny bags should be included in the taxable turnover. The Court emphasized that the transactions were composite sales of both the goods and the packing materials, and that the value of the packing materials was significant and taxable. The revision petition was allowed with no order as to costs.