TaxTMI 
TaxTMI 
2006 (4) TMI 467
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....and selling wheat products packed in gunny bags to the customers as the cheapest and convenient mode of transport and no price whatsoever is charged for the said containers, as in such supply the containers are supplied free of cost. The wheat and wheat products are items exempted from payment of sales tax vide entry 6A of Schedule I attached to the Assam General Sales Tax Act, 1993 (in short, called "the Act 1993"). Earlier tax was intended to be levied on the containers or packing materials by the provision made under Explanation 2 to section 2(34) of "the Act 1993". Explanation 2 of sub-clause (34) of section 2 of the Act 1993 is quoted below: "Explanation 2.-Where any goods are purchased or sold packed in containers or other packing materials of value which is small in comparison with the value of such goods or such packing is essential or customary for the purchase or sale of such goods, then, notwithstanding any agreement to the contrary such containers or other packing materials shall be deemed to have been purchased or sold with such goods and their value, whether charged separately or not, shall be included in the purchase or sale price of such goods and charg....
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.... liable (to pay taxes on the sale value of the containers used in selling such exempted goods) and tax is proposed to be levied on the sale value (expressed or implied) of the containers used in selling some exempted goods, which has to be determined in the prescribed manner. (ii) Sub-rule (2) of rule 6A provides that where no accounts regarding sale of containers are maintained, or such sales are shown at a price lower than the market price or supply of containers are shown as free of cost, the sale price shall be determined at 1 per cent of the sale value of the exempted goods sold. In other words, sub-rule (2) of "rule 6A" has provided for levy of sales tax on the supply of containers even if the same have been supplied free of cost. The aforesaid sub-rule (2) of rule 6A therefore goes contrary to and is beyond the scope of section 7(8) of "the Act 1993" and thereby the said provision of "rule 6A(2)" is liable to be declared ultra vires and consequently to be struck down. Section 2(33) is reproduced below for the convenience to understand the meaning of sale: "2(33) 'Sale' with all the grammatical variations and cognate expressions means any transfer of property in good....
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....tution. (vii) There could be no intention of State Legislature to levy sales tax on supply of the containers free of cost along with sale of tax-free goods (exempted goods). (viii) The provisions of rule 6A(2) have to be construed and interpreted strictly and in case of any ambiguity the benefit has to be given to the assessee or the tax-payer. Learned counsel for the petitioner has referred and has placed reliance on the following cases: (i) Ahmedabad Urban Development Authority v. Sharadkumar Jayantikumar Pasawalla AIR 1992 SC 2038. (ii) Agricultural Market Committee v. Shalimar Chemical Works Ltd. AIR 1997 SC 2502. (iii) State of Kerala v. K.M. Cheria Abdulla and Company [1965] 16 STC 875 (SC); AIR 1965 SC 1585. (iv) Maharashtra State Board of Secondary and Higher Secondary Education v. Paritosh Bhupesh Kurmarsheth AIR 1984 SC 1543. (v) Polestar Electronic (Pvt.) Ltd. v. Additional Commissioner, Sales Tax [1978] 41 STC 409 (SC); [1978] 1 SCC 636. (vi) Smt. Tarulata Shyam v. Commissioner of Income-tax [1977] 108 ITR 345 (SC); [1977] 3 SCC 305. (vii) Murarilal Mahabir Prasad v. B.R. Vad [1977] 37 STC 77 (SC); [1975] 2 SCC 736. (viii) State o....
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.... the law should not be prohibited by any particular provision of the Constitution such as, for example, articles 276(2), 286, etc., and (3) the law or the relevant portion thereof should not be invalid under article 13 for repugnancy to those freedoms which are guaranteed by Part III of the Constitution which are relevant to the subject-matter of the law." According to the respondents/State, the State Legislature without any ambiguity has conferred power under section 7(8) of "the Act 1993" empowering the executive to levy tax on sale value (express or implied) of containers used in selling such exempted goods. In Jamana Flour & Oil Mill (P.) Ltd. v. State of Bihar [1987] 65 STC 462 (SC); [1987] 3 SCC 404, the Supreme Court has an occasion to consider the levy of tax on packing material or containers when the wheat product was being sold in gunny bags and price of gunny bags was included in the consolidated rates of price charged by dealer for wheat products under implied agreement of sale of gunny bags then transfer of gunny bags impliedly was treated to be covered by contract of sale of wheat products and different rate of tax on sale turnover of the gunny bags was held to ....
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.... commodity and the packing material as well s the contents are sold independently, the packing material is liable to tax on its own footing. Whether a transaction for sale of packing material is an independent transaction will depend upon several factors, some of them being: 1.. The packing material is a commodity having its own identity and is separately classified in the Schedule; 2.. There is no change, chemical or physical, in the packing either at the time of packing or at the time of using the content; 3.. The packing is capable of being reused after the contents have been consumed; 4.. The packing is used for convenience of transport and the quantity of the goods as such is not dependent on packing; 5.. The mere fact that the consideration for the packing is merged with the consideration for the product would not make the sale of packing an integrated part of the sale of the product." ". . . In every case, the assessing authority is obliged to ascertain the true nature and character of the transaction upon a consideration of all the facts and circumstances pertaining to the transaction. That the problem almost always requires factual investigation in....
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....he turnover calculated in the manner stated herein above. It has not been found by any of the authorities who heard the case that the cartons were specially provided for protection of the bottles and bottled beer usually was not delivered in cartons even in cases of bulk sales. The argument based on secondary packing is misconceived." According to Mr. Chowdhury, learned Additional Advocate-General, in none of the present group of writ petitions assessment order has been challenged as the sales tax or the assessing authorities have to arrive at a definite finding on the crucial and important question whether the packing materials were subject of the agreement of sale between the assessee and its customers as the same was a pure question of fact depending upon the nature of goods sold and the nature of the packing materials and the purpose for which the said materials were used. Relying upon [1966] 17 STC 624 (SC) (Hyderabad Deccan Cigarette Factory v. State of Andhra Pradesh), it has been urged that this court cannot appreciate the validity and applicability of rule 6A(2) unless the assessment order is challenged separately. In Hyderabad Deccan Cigarette Factory [1966] 17 STC 624....
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....he sales tax authorities from taxing the packing materials if they were the subject-matter of the agreements to sell." As argued by according to the State in view of the decision of the Supreme Court in State of Orissa v. Sudhansu Sekhar Misra AIR 1968 SC 647, it is the decision of the assessing authority which shall be material to test the validity of rule 6A(2) as observed below in Sudhansu Sekhar Misra's case AIR 1968 SC 647: "A decision is only an authority for what it actually decides. What is of the essence in a decision is its ratio and not every observation found therein nor what logically follows from the various observations made in it." However, Mr. G.N. Sahewalla, learned Senior Counsel appearing in the Writ Petition (C) No. 2173 of 2002 has emphatically controverted the above by saying that assessment order has specifically been challenged in the said continuous writ petition. Therefore, the contention for and on behalf of the State that the assessment order has not been challenged has become redundant. In Ahmedabad Urban Development Authority AIR 1992 SC 2038, the question came regarding validity of Regulation levying development fees in reference to secti....
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....nction consists of the determination of the legislative policy and the Legislature cannot abdicate essential legislative function in favour of another. Power to make subsidiary legislation may be entrusted by the Legislature to another body of its choice but the Legislature should, before delegating, enunciate either expressly or by implication, the policy and the principles for the guidance of the delegates. These principles also apply to taxing statutes. The effect of these principles is that the delegate which has been authorised to make subsidiary Rules and Regulations has to work within the scope of its authority and cannot widen or constrict the scope of the Act or the policy laid down thereunder. It cannot, in the garb of making Rules, legislate on the field covered by the Act and has to restrict itself to the mode of implementation of the policy and purpose of the Act. 27.. Applying the above principles to the instant case, it will be seen that the market fee can be levied under the Act only on the sales and purchase of notified agricultural produce within the notified area. Explanation 1 to section 12 creates a legal fiction and provides that if any notified agricult....
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....te as to what principle or policy would best serve the objects and purposes of the Act and to sit in judgment over the wisdom and effectiveness or otherwise of the policy laid down by the regulationmaking body and declare a regulation to be ultra vires merely on the ground that, in the view of the court, the impugned provisions will not help to serve the object and purpose of the Act. So long as the body entrusted with the task of framing the rules or regulations acts within the scope of the authority conferred on it, in the sense that the rules or regulations made by it have a rational nexus with the object and purpose of the statute, the court should not concern itself with the wisdom or efficaciousness of such rules or regulations. It is exclusively within the province of the Legislature and its delegate to determine, as a matter of policy, how the provisions of the statute can best be implemented and what measures, substantive as well as procedural would have to be incorporated in the rules or regulations for the efficacious achievement of the objects and purposes of the Act. It is not for the court to examine the merits or demerits of such a policy because its scrutiny has to ....
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.... a statute is clear and explicit, effect must be given to it, for in such a case the words best declare the intention of the law-giver. . . It is only from the language of the statute that the intention of the Legislature must be gathered, for the Legislature means no more and no less than what it says. It is not permissible to the court to speculate as to what the Legislature must have intended and then to twist or bend the language of the statute to make it accord with the presumed intention of the Legislature. . . It is a well-settled rule of interpretation that in construing a taxing statute 'one must have regard to the strict letter of the law and not merely to the sprit of the statute or the substance of the law'. The oft-quoted words of Rowlett, J., in Cape Brandy Syndicate v. Inland Revenue Commissioners [1921] 1 KB 64, lay down the correct rule of interpretation in case of a fiscal statute: 'In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used'. It is a rule ....
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....ot a sale. And if under the contract of sale, title to the goods has not passed, then there is an agreement to sell and not a completed sale. Moreover under the law there cannot be an agreement relating to one kind of property and a sale as regards another. There must be an agreement between the parties for the sale of the very goods in which eventually property passes." In Dhariwal Bottle Trading Company [1995] 99 STC 326, the Bombay High Court has an occasion to deal with the implied sale of packing materials and has observed as below: "An implied sale of packing materials cannot be inferred in all cases, but only in cases where the special facts and circumstances justify such an inference. It is necessary in most cases to pack goods in some material or container for the purpose of transportation, handling, etc., but the seller neither intends to sell nor the purchaser to purchase the packing material. The packing material is used merely as a cheap or convenient mode of transport. No sale of the packing material would be involved in such cases. The fact that the seller had procured the packing materials for a price, or that the value of the containers must have been taken i....
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....ed strictly. There is no scope of equity or judiciousness if the letter of law is clear and unambiguous. The benefit of any ambiguity or conflict in different provisions of statute shall go to the subject. In Morgardshammar India Ltd. [1996] 101 STC 1 (SC); [1996] 1 SCC 108, the interpretation of exemption provision in taxing statute was indicated to be construed strictly. In State of West Bengal v. Kesoram Industries Ltd. [2004] 2 RC 298; [2004] 10 SCC 201, the Supreme Court has observed that the power to tax must be express and the taxing statutes are to be interpreted strictly. The relevant paragraphs (pages 358-359 of RC) are given as below: "104. There is nothing like an implied power to tax. The source of power which does not specifically speak of taxation cannot be so interpreted by expanding its width as to include therein the power to tax by implication or by necessary inference. '. . . There is no such thing as taxation by implication. The burden is always upon the taxing authority to point to the act of assembly which authorises the imposition of the tax claimed.' '105. Justice G.P. Singh in Principles of Statutory Interpretation (Eight Edition, 200....
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.... 107. Power to tax is not an incidental power. According to Seervai, although legislative power includes all incidental and subsidiary power, the power to impose a tax is not such a power under our Constitution. It is for this reason that it was held that the power to legislate in respect of inter-State trade and commerce (entry 42, List I, Schedule VII) did not carry with it the power to tax the sale of goods in inter-State trade and commerce before the insertion of entry 92-A in List I and such power belonged to the States under entry 54 in List II. Entry 97 in List I also militated against the contention that the power to tax is an incidental power under our Constitution." In Bimal Chandra Banerjee v. State of Madhya Pradesh AIR 1971 SC 517, it was held by the Supreme Court that the tax by rule or regulation cannot be imposed unless specially authorised by the State. It was observed in Bimal Chandra Banerjee AIR 1971 SC 517 as follows: "No tax can be imposed by any bye-law or rule or regulation unless the statute under which the subordinate legislation is made specially authorises the imposition even if it is assumed that the power to tax can be delegated to the executi....
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....lied and for that purpose the Legislature has empowered enough the State Government to determine and to prescribe the manner of levying tax on such sale value. Regarding determination of sale price of containers or packing materials used in sale or supply of exempted goods, there appears to be no controversy in reference to the applicability of rule 6A(1) more specifically, when sale price of containers of exempted goods are separately shown in the books of account. But the real exercise has to be made in determining the sale price in respect of the transaction or in respect of the cases which are reflected or contemplated under rule 6A(2) of "rules 1993". By plain reading of "rule 6A(2)" it appears that in following three conditions sale price shall have to be determined at one per cent of the sale value of the exempted goods. (i) Where no accounts regarding sale of containers are maintained by the assessee, or, (ii) When assessee has shown its sale price lower than the market price, or, (iii) Supply of containers are shown as free of cost. In all the above three conditions question arises for determining the real sale value of containers or packing materials ....
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....ice of containers at one per cent sale value of the exempted goods even if the sale or supply of containers were not actually made within the meaning of section 2(33) and 2(34) of "Act 1993", meaning thereby, if the supply or sale of containers were made free of cost without consideration or without entering into agreement then the sale price cannot be determined at one per cent taking the sale value of exempted goods. So, if the dealer has shown supply or sale of containers free of cost then the State Government or its officials or the assessing authority including the appellate authority or the assessing officer in reference to "rule 6A(2)" may make an inquiry, scrutinise, analyse the transaction or the entries in the books of account for finding real nature of sale or supply of containers and if it is found there is no supply or sale of containers then sale price of containers cannot be determined at one per cent of sale value of the exempted goods. Therefore, in the light of the law laid down by the Supreme Court in 20th Century Finance Corporation Ltd. v. State of Maharashtra [2000] 119 STC 182; [2000] 6 SCC 12 the provision of "rule 6A(2)" has to be read properly an....