2025 (12) TMI 1071 - HC - VAT / Sales Tax

Cement sales invoiced separately for gunny and HDPE bags treated as one sale price under s. 2(u); tax upheld

Under the Bihar Finance Act, 1981, the 'sale price' under s. 2(u) is the total valuable consideration payable for the sale or supply of 'goods,' which, on ... Charging of sales tax separately on gunny bags and HDPE bags and on cement at different rates namely 4%, 7%, and 11% respectively - “sale price” on which sales tax is to be levied must be treated as a consolidated amount @ 11 % irrespective of the separate prices shown in the invoices - HELD THAT:- The present matter is fully governed by the Bihar Finance Act, 1981, as amended from time to time. It is evident that the levy of sales tax has always been on the sale price of the goods in question and ‘sale price’ has been separately defined in Section 2(u) of the Act. A bare reading of Section 2(u) makes clear that the definition of “sale price” applies in the present case. Under Section 2(u), the sale price on which tax is liable to be paid is the amount payable to a dealer as valuable consideration in respect of the sale or supply of goods. In the present matter, the term “goods” includes cement along with its packing material. With regard to the judgments cited by learned counsel for the appellant Mathuram Agrawal [1999 (10) TMI 125 - SUPREME COURT], Govind Saran Ganga Saran [1985 (4) TMI 65 - SUPREME COURT], and Raj Steel & Ors. v. State of A.P. & Ors. [1989 (5) TMI 292 - SUPREME COURT] it is to be noted that these decisions merely reiterate that, in commercial law, statutory language must be interpreted plainly. Here, Section 2(u) clearly defines the sale price, and its plain meaning must prevail. The substantial question whether cement and packing material should be taxed separately does not arise, nor would such a position be legally correct, particularly when the appellant has brought no factual material on record. The plain reading of Section 2(u) governs the issue. The substantial question of law is answered against the appellant and in favour of the respondent, and it is held that the order passed by the Assessing Authority, the Appellate Authority, and the Revisional Authority are fully in accordance with law and calls for no interference - Appeal dismissed. 1. ISSUES PRESENTED AND CONSIDERED (a) Whether, under the Bihar Finance Act, 1981, sales tax can be charged separately on packing materials (gunny bags and HDPE bags) and on cement at different rates, or whether the 'sale price' for levy of sales tax must be treated as a consolidated amount at the cement rate irrespective of separate itemisation in invoices. 2. ISSUE-WISE DETAILED ANALYSIS (a) Taxability of cement and packing materials at separate rates versus consolidated 'sale price' Legal framework The Court examined the scheme of the Bihar Finance Act, 1981, focusing on Section 2(u) defining 'sale price'. Section 2(u) provides that 'sale price' means the amount payable to a dealer as valuable consideration in respect of the sale or supply of goods. Explanation I states that sale price includes any amount charged by the dealer for anything done in respect of the goods at or before delivery to the buyer. Explanation II excludes cash discounts (if shown separately and according to ordinary trade practice) and transport costs (if separately charged). The Court also noted the statutory rate structure under Section 12 and related notifications, under which cement was taxable at 11%, gunny bags at 4%, and HDPE bags at 7% during the relevant periods. Interpretation and reasoning The appellant argued that cement and packing materials (gunny and HDPE bags) are independent commodities with distinct tax rates under the statute; therefore, invoices showing 11% tax on cement and 4%/7% on bags were said to be in conformity with Section 12. The appellant relied on Supreme Court authorities emphasizing plain meaning in taxation statutes and, particularly, on the principle that where packing material is an independent commodity and sold separately, it may be taxed independently. The respondent relied on the statutory definition of 'sale price' in Section 2(u) and on precedent indicating that charges integral to putting goods in a deliverable state can form part of the sale price of the goods sold. The Court held that the central question was whether the sale transaction in substance involved a separate sale of packing materials, or whether the sale of cement in packed condition constituted a single composite sale of 'goods' for which cement together with its packing is the relevant taxable unit. It observed that, in the present case, the packing of cement in gunny/HDPE bags was carried out at or prior to delivery and that there existed an implied agreement to sell the packing material along with the cement. However, the Court underscored that no specific contract or evidence of a separate agreement for sale of bags had been produced before the authorities or the Tribunal by the appellant. Applying Section 2(u), the Court reasoned that the 'goods' for purposes of the transaction were cement along with its packing, and the valuable consideration payable to the dealer in respect of such goods constituted a single 'sale price'. Under Explanation I, amounts charged for anything done in respect of the goods at or before delivery (including packing) form part of that sale price. Therefore, the total consideration for cement in its packed form is to be treated as one integrated 'sale price' for levy of tax. The Court distinguished the authorities cited by the appellant on the ground that they merely reaffirm the rule of plain construction of taxing statutes. It held that, on a plain reading, Section 2(u) clearly covers the instant situation and leaves no room for treating packing material as separately taxable in absence of evidence of an independent sale. Consequently, the Court held that the statutory definition of 'sale price' governs and that the separate rate entries for packing materials under Section 12 do not override the composite nature of the consideration in the given transaction when no separate sale of bags is established. Conclusions The Court concluded that, under Section 2(u) of the Bihar Finance Act, 1981, the 'sale price' for the transaction in question is the consolidated amount payable for cement in its packed condition, which includes the value of the packing material. As such, sales tax is leviable on the consolidated sale price at the cement rate (11%) and not at separate rates on cement and packing materials (4%/7% and 11%) merely because separate prices are shown in the invoices. The Court held that the substantial question of law claimed by the appellant-whether cement and packing material should be taxed separately-does not in fact arise on the statutory scheme properly construed, and in any event such separate taxation is not legally permissible on the facts of the case. The orders of the Assessing Authority, Appellate Authority, and Revisional Authority treating the sale price as consolidated and levying tax accordingly were upheld as being in accordance with law, and all appeals were dismissed.