2015 (4) TMI 1090 - HC - VAT and Sales Tax

Court rules in favor of appellant, distinguishing cement and packing material sales. Invoice crucial.

The court found in favor of the appellant, holding that the sale of cement and packing material were distinct and separate sales. The Commissioner's order ... Whether the appellant had established that the sale of cement and the containers/bags is not an integrated sale and that the sale of cement and HDPE bags/packing material - Engaged in business of manufacture and sale of cement - Appellant contended that containers are distinct and separate sales and that there was a contract express/implied for such separate sales of cement and the bags/packing material - Held that:- a reading of the invoice would clearly show that the sale of cement and packing material is not an integrated sale and that the sale of cement and packing material are distinct sales. The invoice on a perusal would lay bare that the cement was sold in quantities of metric tonnes and that the rate of cement and the cost of packing material are separately shown. Therefore, the invoice produced clearly establishes that there is a separate sale of packing material and that there is no integrated sale of cement with HDPE bags/packing material and the appellant had not provided the bag free of cost considering the significant cost of the bag. Therefore, from the contents of the invoice, the contention of the appellant that there is a separate and distinct sale of cement and packing material appears to be correct. As there is no rebuttable evidence to rebut the presumption, which can be drawn, on the basis of the invoice which constituted an inclusive piece of evidence. Therefore, on facts that the appellant is able to establish that the sale is not an integrated sale but, the sale of cement and packing material is distinct and separate. So, when there is an agreement to sell separately the packing material and the goods packed or filled, the appellant can successfully contend that the sale of cement and the sale of packing material are different and distinct. Therefore, the impugned order is set aside. - Decided in favour of appellant Issues Involved:1. Whether the sale of cement and the containers/bags is an integrated sale or distinct and separate sales.2. Whether the order of the Commissioner is liable to be set aside and the order of the Appellate Deputy Commissioner (ADC) and the consequential order of the Commercial Tax Officer (CTO) are to be restored.Issue-wise Detailed Analysis:Issue 1: Integrated Sale vs. Separate SalesFacts and Contentions:- The appellant, a registered dealer, was assessed for the year 1991-92, and the CTO levied tax on the turnover including packing material (HDPE bags) at the rate applicable to cement.- The appellant contended that the sale of cement and the packing material are independent and should be taxed separately. The ADC accepted this contention, but the respondent (Commissioner) revised this decision, treating the sale as integrated.Legal Precedents and Analysis:- The Supreme Court in *Raj Sheel v. State of Andhra Pradesh* held that whether packing material is sold or transferred depends on the contract between the parties. Factors include the identity of the packing material, its reuse capability, and whether it is sold for convenience of transport.- In *Vasavadatta Cements v. State of Karnataka*, the Supreme Court reiterated the need for factual investigation to determine if packing material is sold independently.- The Andhra Pradesh High Court in *Priyadarshini Cements* and the Supreme Court in *Hyderabad Deccan Cigarette Factory* emphasized the need to ascertain the intention and agreement between parties regarding the sale of packing material.Court's Findings:- The invoice provided by the appellant showed separate charges for cement and packing material, indicating distinct sales. The court held that the recitals in the invoice are sufficient evidence of the intention to sell packing material separately.- The court rejected the respondent's argument that cement must be sold in packed condition as per standards, noting the legislative provision allowing separate sales of cement and packing material (amendment to entry 18 of Schedule I effective from 01.08.1996).Issue 2: Validity of the Commissioner's OrderFacts and Contentions:- The appellant argued that the ADC's order, which treated the sales as separate, should be upheld. The respondent's revision was based on the view that there was no separate sale of packing material.Legal Precedents and Analysis:- The court examined various precedents, including *Bengal Electric Lamp Works Ltd. v. State of Gujarat* and *Dalmia Cement (Bharat) Limited v. State of Tamil Nadu*, which dealt with implied agreements for the sale of packing materials.- The court noted that in previous assessment years, similar issues were resolved in favor of the appellant, and the orders had become final.Court's Findings:- The court found that the appellant had successfully established that the sale of cement and HDPE bags were distinct and separate. The Commissioner's order was contrary to the facts and legal position at the relevant time.- The court held that the appellant's case had merit and deserved to be allowed. Consequently, the order of the ADC and the consequential orders of the CTO were restored.Conclusion:The appeal was allowed, setting aside the Commissioner's order and restoring the ADC's and CTO's orders, which recognized the separate sale of cement and packing material. The court emphasized the importance of the invoice as evidence of the parties' intention and the legislative provision allowing separate sales of cement and packing material.