Concessional tax on packing materials applies where the finished product remains liable to tax despite exemption from payment.

Gunny bags sold as packing materials to a cattle feed manufacturer qualified for concessional tax under section 5(3) of the Kerala General Sales Tax Act because the proviso withdrawing that benefit applies only where the finished product is not liable to tax in law. Although cattle feed was exempted from actual payment of tax by notification, it remained liable to tax under the Act, and exemption from payment did not extinguish tax liability. As the required declarations in form 18 were furnished, the statutory conditions for the concession were satisfied and the higher rate could not be denied.

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Issues: Whether gunny bags sold to a manufacturer of cattle feed were entitled to concessional tax under section 5(3) of the Kerala General Sales Tax Act when the finished product, cattle feed, was exempt from payment of tax.

Analysis: Section 5(3) grants concessional tax on sales of packing materials sold for use in packing finished products for sale, but its first proviso withdraws the benefit only where the finished products are not liable to tax under the Act or the Central Sales Tax Act. The cattle feed in question remained an item liable to tax under the Kerala General Sales Tax Act, even though it was exempted from actual payment of tax by notification. The distinction between liability to tax and payment of tax is material: exemption from payment does not mean the goods are not liable to tax. Since the declarations in form 18 were duly furnished and the finished product was still taxable in law, the proviso was not attracted.

Conclusion: The assessee was entitled to the concessional rate of tax on sale of gunny bags to the cattle feed manufacturer.

Ratio Decidendi: A statutory exemption from payment of tax does not negate the underlying liability to tax, and the denial of concessional rate under section 5(3) arises only when the finished product is not liable to tax in law.

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