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2006 (1) TMI 244
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....A.P. General Sales Tax Act (for short, "the Act") introduced by the A.P.G.S.T. (Amendment) Act, 1996 (Act No. 27 of 1996), on the ground that it is violative of article 14 of the Constitution of India. 2.. The appellants are, inter alia, engaged in the manufacture and sale of cement and have various factories in different locations in India, including a unit in the State of Andhra Pradesh for manufacturing cement. The appellants have their marketing division at Secunderabad from where sales of cement are carried on. It has its warehouses all over the State of Andhra Pradesh. Earlier the State was charging sales tax on the sale of cement at the rate of 16 per cent as notified by the State Government, which included the value of the packing material used for packing cement. The value of packing material is also charged to sales tax on the total sales turnover. As far as second sale is concerned sales tax is not paid on the value of packing materials, as sales tax is leviable only on the first sale of packing materials. Section 6-C was introduced by the Andhra Pradesh General Sales Tax (Amendment) Act (No. 11 of 1984) which reads as under: "6-C. Levy of tax on packing materials.....
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....ell as the contents are sold independently, the packing material is liable to tax on its own footing." 5.. The deeming provision as introduced by Act No. 11 of 1984 by the Legislature by this interpretation was reduced to mere insignificance. This interpretation put the assessing and appellate authorities to the need of making elaborate enquiries on the question whether there was an agreement express or implied for the sale of packing material and whether any artificial or colourable devices were adopted by the assessee to split up the transaction so as to take the plea that there was a separate contract for the sale of packing material. The State Legislature then introduced section 6-C in a modified form. The following provision was substituted by the Andhra Pradesh Amending Act 22 of 1995 with effect from April 1, 1995. The amended section 6-C reads as follows: "6-C. Levy of tax on packing material. - Notwithstanding any- thing contained in section 5, section 5-F, section 6 and section 6-A, the rate of tax on packing material sold with the goods shall be the same as that of the goods packed or filled, whether or not there is separate sale or agreement for sale for the packi....
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.... material and if the cement is sold along with separate sale of packing material for a separate price, sales tax is charged at the rate of 20 per cent. According to the appellants, the same commodity, i.e., the cement cannot be treated and made liable to pay differential duty of tax depending upon how the sale of cement is effected, i.e., by effecting the sale of cement and packing material separately. 11. The appellants have been showing the value of cement and the value of the packing material separately while preparing their bills. The appellants' case as set out in para 4 of the affidavit filed in support of the writ petition reads as under: "The petitioner-company has been showing the value of cement and the value of packing material separately while preparing the bills. Copy of the bills are filed herewith. The purpose of showing separately the value of cement and the packing material which is used for packing cement is only for the purpose of claiming exemption for the packing material as sales tax is not levied on second sales of packing material as per the Act. By virtue of the Ordinance cement for which tax is levied is 16 per cent and when cement is sold with packe....
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....xation without apparent justification. It was held that: "The present case is not a case in which a species of the genus is picked up for higher taxation without apparent justification. The charge of discrimination was upheld in Arya Vaidya Pharmacy's case See [1989] 73 STC 346. (1989) 2 SCC 285, having regard to the inherent nature of the commodity and its similarity with others falling within the same category. In the present case, the rate of tax on cement is made dependant on whether the sale price of cement includes the cost of packing materials. If the packing material cost is shown as an integral part of the price at which the cement was sold, it would attract lesser rate of tax. However, if the packing material cost is excluded from the sale value of the cement, the turnover will be less and in such an event, the Legislature thought it fit to prescribe a higher rate of tax. It is left to the dealer to choose one of the courses. Different rates of tax for the same commodity is prescribed depending on whether the price includes packing material cost, obviously with a view to check tax avoidance. Such was not the situation in Arya Vaidya Pharmacy's case See [1989] 73 STC 34....
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....e to tax everything in order to tax something. The State enjoys a wide discretion in the matters of taxation and enjoys more freedom for classifying the objects to be taxed and the rates of taxation. The burden for proving discrimination is always heavy on the person who alleges discrimination and heavier still when a taxing statute is under attack. That the State can validly pick and choose one commodity for taxation and the same is not open to attack under article 14 on the ground that the same result must follow when the State picks out one category of goods and subjects it to the taxation. The relevant portions at para 15 of this judgment read as under: "15. We may now state the principles on which the present case must be decided. These principles have been stated earlier but are often ignored when the question of the application of article 14 arises. One principle on which our courts (as indeed the Supreme Court in the United States) have always acted, is nowhere better stated than by Willis in his 'Constitutional Law' page 587. This is how he put it: 'A State does not have to tax everything in order to tax something. It is allowed to pick and choose districts, objects,....
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....ial indulgence. This Court has uniformly held that classification for taxation and the application of article 14, in that context, must be viewed liberally, not meticulously." 18.. Recently, in State of W.B. v. Kesoram Industries Ltd. See [2004] 2 RC 298. (2004) 10 SCC 201, a Constitution Bench by a majority of 4:1 held that the measure/mode/machinery employed for assessing a tax must not be confused with the nature of the tax. A tax has two elements: first, the person, thing or activity on which the tax is imposed (the subject of tax), and second, the amount of tax. The subject of tax is different from the measure of levy. The amount of tax may be measured in many ways but the distinction between the subject-matter of a tax and the standard by which the amount of tax is measured must not be lost sight of. While the subject of tax is clear and well defined, the amount of tax is capable of being measured in many ways for the purpose of quantification. Devising the measure of taxation is a far more complex exercise than defining the subject of tax and therefore the Legislature has to be given much more flexibility for devising the measure of taxation. It was observed in para 33 as....
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....to classify land by reference to its user as a separate unit for the purpose of levy of cess. Tea estate, as a separate category of land, is a valid classification;" It was further observed in para 129, sub-para (3) as under: "(3) The nature of tax levied is different from the measure of tax. While the subject of tax is clear and well defined, the amount of tax is capable of being measured in many ways for the purpose of quantification. Defining the subject of tax is a simple task; devising the measure of taxation is a far more complex exercise and, therefore, the Legislature has to be given much more flexibility in the latter field. The mechanism and method chosen by Legislature for quantification of a tax is not decisive of the nature of the tax though it may constitute one relevant factor out of many for throwing light on determining the general character of the tax." 19.. In State of U.P. v. Sukhpal Singh Bal See [2006] 6 RC 22. (2005) 7 SCALE 106, this Court has laid down that the courts must show judicial restraint while considering the scope of economic legislation as well as tax legislation and unless the provision is manifestly unjust or glaringly unconstitutional....
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....ner was upheld by the appellate court and the High Court. Before this Court it was contended by the assessee that since the appellants had charged, and the customers paid, for the liquor and cartons separately, in the presence of entry 97 in Schedule I to the Act prescribing a specific rate of tax for cartons, the value of the containers could not be included in the value of the liquor for the purpose of calculating the assessee's turnover. It was further contended that the sales tax under the Kerala General Sales Tax Act being a single point tax and tax having already paid on the cartons by the manufacturers thereof, the cartons could not be taxed again at the time of the sale of beer. Dismissing the appeal this Court pointed out in para 6 that: "The language of sub-sections (5) and (6) of section 5 is clear and unambiguous. These two sub-sections deal with the method of valuation of packed goods and the rate of tax payable thereon. The rules laid down are: (1) Where goods sold are contained in a container or packed in any packing material, the rate of tax payable on the containers shall be the same as that applicable to the goods contained or packed. (2) This will be the....
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.... section 5 is clear and unambiguous. These two sub-sections deal with the method of valuation of packed goods and the rate of tax payable thereon. The rules laid down are: (1) Where goods sold are contained in a container or packed in any packing material, the rate of tax payable on the containers shall be the same as that applicable to the goods contained or packed. (2) This will be the position even if price of the containers or packing materials is charged separately. (3) The turnover of the goods will include the turnover in respect of containers or packing materials in which the goods are contained or packed. (4) The point of levy of the tax on the containers or the packing that the turnover of the goods will include the turnover in respect of the packing materials or the containers. The containers or the packing materials will be taxed at the same point and at the same rate at which the goods are to be taxed. This rule will apply 'whether the price of the containers or the packing materials is charged separately or not'. Therefore, even in a case where the containers are separately sold, the turnover of the goods will include the turnover of the containers and ....
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..... We are in respectful agreement with the view taken by three-Judge Bench in Premier Breweries' case See [1998] 108 STC 598; (1998) 1 SCC 641., which has interpreted sub-sections (5) and (6) of section 5 of the Kerala General Sales Tax Act, 1963 which is in pari materia with the section 6-C as introduced by the amendment Act 22 of 1995. 26.. In Arya Vaidya Pharmacy v. State of Tamil Nadu See [1989] 73 STC 346. (1989) 2 SCC 285, which is the sheet anchor of the appellants' submission, the facts were: that the appellants were manufacturers of Ayurvedic drugs and medicines, including arishtams and asavas. Arishtams and asavas contain alcohol, which according to the assessee was essential for the effective and easy absorption of the medicine by the human system and also because it acted as a preservative. While all other patent or proprietary medicinal preparations belonging to the different systems of medicines were taxed at the rate of 7 per cent only, arishtams prepared under the ayurvedic system were made subject to a levy of 30 per cent. The appellants filed the writ petitions in the High Court of Madras challenging the levy at 30 per cent on arishtams and asavas, being violati....
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..... 28.. Moreover, as per G.O. Ms. No. 374 Rev dated April 25, 1987, tax levied in the State on the packing material used for packing the goods shall be reduced from the tax payable by a dealer at the rate applicable to cements under section 6-C on the turnover of sale of such goods and packing material. If the appellants purchased the packing material from any dealer within the State and paid tax at 16 per cent on cement under clause (a) he would be entitled to claim set-off of the tax paid by him on such packing material at the time of its purchase inside the State. The High Court rightly pointed out that the imposition of higher rate of tax in the case falling under clause (b) of entry 18 is to check the tax avoidance measures which are said to be rampant. That contrary to the normal business practices and modalities of sale of cement, the manufacturers had started bifurcating the price of cement and packing material to make it to appear that there was separate sale of each of them, so that they need not have to pay the higher tax on the component of packing material. It is common knowledge that the cement, barring some bulk supplies, is ordinarily sold in packed condition, i.e....