2010 (2) TMI 1089 - HC - VAT and Sales Tax

High Court exempts gunny bags from Central sales tax when sold with tax-free bidi, based on legal fiction.

Commissioner of Sales Tax, MP. Versus Dayalal Meghji and Co.

The High Court of Chhattisgarh ruled in favor of the assessee, upholding the exemption of gunny bags from Central sales tax when sold along with tax-free ... Whether, under the facts and circumstances of the case, the Tribunal was justified in holding that the gunny bags sold along with exempted bidi is also exempted from tax under section 8(2A) of the Central Sales Tax Act, 1956, read with Explanation annexed to the definition of 'sale price' defined under section 2(o) of the M. P. General Sales Tax Act? Whether, under the facts and circumstances of the case, the Tribunal was justified to the above in the light of the fact that for inter-State sale the definition of 'sale' as defined under section 2(g) of the Central Sales Tax Act shall be applicable? Held that:- In view of the provisions of section 8(2A) of the Act, 1956 and section 2(o) of the Act, 1958, we are of the opinion that the Board was justified in holding that the gunny bags sold along with exempted bidi is also exempted from the payment of Central sales tax under section 8(2A) of the Act, 1956 read with the Explanation annexed to the definition of 'sale price' under section 2(o) of the Act, 1958. We answer the questions of law referred to us by the board in affirmative, i.e., in favour of the assessee and against the Revenue, Commercial Tax Department. Issues:Interpretation of provisions under the M. P. General Sales Tax Act, 1958 and the Central Sales Tax Act, 1956 regarding the tax liability on the sale of gunny bags along with exempted bidi in the context of inter-State trade.Analysis:The High Court of Chhattisgarh addressed the questions of law referred to them by the Board of Revenue concerning the tax treatment of gunny bags sold with tax-free bidi. The case involved the interpretation of the M. P. General Sales Tax Act, 1958 and the Central Sales Tax Act, 1956. The main contention was whether the gunny bags sold along with the exempted bidi were also exempt from tax under section 8(2A) of the Central Sales Tax Act, 1956, read with the Explanation to the definition of 'sale price' under section 2(o) of the M. P. General Sales Tax Act.The Respondent-dealer, involved in inter-State trade of tax-free bidi, had also sold gunny bags during the relevant period. Initially, the assessing officer imposed Central sales tax on the sale of gunny bags, but the Board later allowed the appeal of the assessee, stating that since the bidi was tax-free, the gunny bags were also exempt. The Revenue challenged this decision, leading to the current reference to the High Court.The arguments presented by both parties focused on the relevant provisions of the Acts. The Government Advocate contended that the dealer was not entitled to exemption under section 8(2A) of the Act, 1956, as gunny bags were not included in the Schedule I or covered by any exemption notification. Conversely, the Respondent's counsel argued that the Explanation to section 2(o) of the Act, 1958 deems packing material (gunny bags) to be part of the goods sold (bidi), making it tax-free.The Court carefully analyzed the provisions of section 2(o) of the Act, 1958, which includes the Explanation regarding the sale price of goods sold with packing material. It was concluded that the legal fiction created by this section deems packing material to be sold along with goods, subject to tax at the rate applicable to the goods themselves.Furthermore, the Court examined section 6(1A) and 8(2A) of the Act, 1956, which govern the liability to tax on inter-State sales and exemptions based on the nature of goods sold. It was held that under section 8(2A), the gunny bags sold with tax-free bidi were indeed exempt from Central sales tax.In conclusion, the High Court ruled in favor of the assessee, upholding the decision of the Board of Revenue. The questions of law were answered affirmatively, supporting the exemption of gunny bags from Central sales tax when sold along with tax-free bidi in inter-State trade.The reference was disposed of accordingly, settling the dispute between the parties.