Packing material in tobacco re-drying may constitute a separate taxable sale when business conduct implies a purchase agreement.

Packing material used in the re-drying of tobacco was treated as a separate sale for sales tax purposes because the materials remained distinct from the tobacco, were separately marketable, and an implied agreement to purchase them for consideration was inferred from the course of business. The charging provision and definition of sale were construed to cover transfers of property in goods for consideration, including where the agreement is implied from surrounding circumstances. On that reasoning, turnover attributable to the packing material was taxable. A dissent viewed packing as integral to the process and characterised the transaction as a works contract without an independent taxable sale.

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Issues: Whether packing material used in the re-drying of tobacco constituted a separate sale liable to sales tax, or whether it formed an integral part of the re-drying process and was therefore not exigible to tax.

Analysis: The majority held that the packing material was not part of the re-drying process. The tobacco, after reconditioning, remained distinct from the packing material, and the materials used for packing were treated as separate, marketable goods. On the facts, the customer knew that the factory supplied such packing material and charged for it as part of the consolidated amount. From the established course of business, an implied agreement to purchase the packing material for a price was inferred. The governing charging provision and the definition of sale were construed to cover transfers of property in goods for consideration, including where the agreement to sell was implied from the circumstances.

Conclusion: The packing material was held to be separately sold and the turnover relating to it was taxable.

Dissenting Opinion: Subba Rao, J. held that packing was an integral part of the re-drying and storage process, that there was no independent contract to sell the packing material, and that the transaction amounted only to execution of a works contract without a taxable sale of the packing material.

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