PETITIONER:
RAJ STEEL & ORS. ETC. ETC.
Vs.
RESPONDENT:
STATE OF A.P. & ANR. ETC. ETC.
DATE OF JUDGMENT16/05/1989
BENCH:
PATHAK, R.S. (CJ)
BENCH:
PATHAK, R.S. (CJ)
KANIA, M.H.
CITATION:
1989 AIR 1696 1989 SCR (3) 305
1989 SCC (3) 262 JT 1989 Supl. 226
1989 SCALE (1)1573
ACT:
Andhra Pradesh General Sales Tax Act, 1957/Andhra Pra-
desh General Sales Tax Rules. Sections 2, 5, 6 and First
Schedule Item 157/ Rule 6--Assessees--Manufacturers of
beer/cement--Goods--Beer sold in bottles packed in Cartons
and cement in gunny bags--Assessment to sales tax made on
the turnover of packing material--Whether valid.
HEADNOTE:
The appellants in some of the appeals are manufactur-
ers of or dealers in beer, the appellants in the other
appeals are manufacturers of or dealers in cement.
The appellants filed writ petitions in the Andhra
Pradesh High Court challenging the assessment made under the
Andhra Pradesh General Sales Tax Act, 1957 on the turnover
of packing material employed either by way of bottles for
containing beer or by way of gunny bags for packing cement.
The appellants challenged the application of such rate in
assessments made in relation to the period before 8 July,
1983. The appellants also challenged the application of that
rate proposed pursuant to s. 6C in show cause notices issued
by the concerned authority. Section 6C was inserted in the
Act with effect from 8 July, 1983.
The High Court while dismissing the writ petitions,
proceeded on the basis that, having regard to the nature of
the goods and to the trade practice in respect of beer and
cement, the containers were necessary concomitants in the
transactions, and the transfer of property in the containers
was incidental or unavoidable, that the sale transactions
had to be regarded as composite and integrated sales of the
containers and their contents and what was really sold was
the bottled beer or the cement packed in gunny bags. The
learned Judges expressed the view that the consideration
paid by the purchaser to the dealer consisted not only of
the price of the contents, namely, beer or cement, but also
included the price of the containers, that is, the bottles
and the cartons in the case of beer and gunnies in the case
of cement.
While allowing the appeals and remanding the cases to the
High
306
Court, and in the case of the writ petitions, while direct-
ing the assessing authority to determine the matters after
allowing the dealers to show cause, this Court,
HELD: (1) A transaction of sale may consist of a sale of
the product and a separate sale of the container housing the
product with respective sale considerations for the product
and the container separately; or it may consist of a sale of
the product and a sale of the container but both sales being
conceived of as integrated components of a single sale
transaction; or what may yet be of a third case, it may
consist of a sale of the product with the transfer of the
container without any sale consideration therefore. The
question in every case will be a question of fact as to the
nature and ingredients of the sale. It is not right in law
to pick on one ingredient only to the exclusion of the
others and deduce from it the character of the transaction.
In every case, the assessing authority is obliged to ascer-
tain the true nature and character of the transaction upon a
consideration of all the facts and circumstances pertaining
to the transaction. [310C-E; H; 311A]
Hyderabad Deccan Cigarette Factory v. The State of A.
P., [1966] 17 STC 624, referred to.
(2) There can be as many different kinds of transactions
as the circumstances of the case may require either by
reason of prevailing trade practice or market conditions or
personal convenience, and as human ingenuity may devise for
bonafide reducing the burden of tax. Whether a transaction
for sale of packing material is an independent transaction
will depend upon several factors. [312E]
(3) The issue as to whether the packing material has
been sold or merely transferred without consideration de-
pends on the contract between the parties. The fact that the
packing is of insignificant value in relation to the value
of the contents may imply that there was no intention to
sell the packing, but where any packing material is of
significant value it may imply an intention to sell the
packing material. In a case where the packing material is an
independent commodity and the packing material as well as
the contents are sold independently. The sale of the packing
material is liable to tax independently. [313E-G]
Commissioner of Taxes, Assam v. Prabhat Marketing Co.
Ltd., [1967] 19 STC 84; The State of Karnataka v. Shaw Wel-
lace & Company Ltd., [1981] 48 STC 169; Arlem Breweries Ltd.
v. The Assistant Commissioner of Sales Tax, Panaji, [1983]
53 STC 172; M/s. Jamana Flour
307
Mill (P) Ltd. v. State of Bihar, AIR 1987 SC 1207 and Punjab
Distilling Industries Ltd. v. The Commissioner of Income
Tax, Simla, [1959] Supp. 1 SCR 683, referred to.
4. Section 6C seems to envisage a case where it is the
goods which are sold there is no actual sale of the packing
material. The section provides by legal fiction that the
packing material Shall be deemed to have been sold alongwith
the goods. In that event, the tax will be leviable on such
deemed sale of the packing material at the rate of tax
applicable to the sale of the goods themselves. It is diffi-
cult to comprehend the need for such a provision. It can at
best be regarded as a provision by way of clarification of
an existing legal situation, which merely explains that the
components which have entered into determining the price of
the goods cannot be treated separately from the goods them-
selves, and that no account was in fact taken of the packing
material when the transaction took place, and that if such
account must be taken then the Same rate must be applied to
the packing material as is applicable to the goods them-
selves. [314D-E; 315A-B]
(5) It is difficult to accept the contention of the
appellants that a rate applicable to the packing material in
the Schedule should be applied to the sale of such packing
material in a case under s. 6C, when in fact there was no
such sale of packing material and it is only by legal fic-
tion, and for a limited purpose, that such sale can be
contemplated. In the circumstances, no question arises of s.
6C being constitutionally discriminatory, and therefore
invalid. [315B-C]
(6) The High Court has proceeded on the assumption that
what is charged is the price of the bottled beer or of
cement packed in gunny bags. No attempt was made by the tax
authorities to ascertain the facts of each case and to
determine what were the actual ingredients of the contract
and the intention of the parties. Assumptions had been made
when what was required was a detailed investigation into the
facts. Because of the lack of adequate and clear factual
material, the High Court also was compelled to proceed on
the basis of generalised statements and broad assumptions.
[315C-E]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal NO. 186875 of
1986.
From the Judgment and Order dated 28.2.1986 of the
Andhra Pradesh High Court in W.P. Nos. 10181 of 1983, 11830,
4677, 4763, 4778 of 1985, 4926, 4935 and 4948 of 1986.
308
A.K. Ganguli, A.K. Sen, Shanti Bhushan, Harish N. Salve,
S. Krishnan, J.B. Dada Chanji, Mrs. A.K. Verma, Joel Pares,
R. Dave, A. Subba Rao, Sunil Kumar Jain, Vijay Hansaria, K.
Srinivasa Mufti, Kailash Vasudev, Nauni Lal, A.T.M. Sampath,
R. Karanjawala, Mrs. M. Karanjawala and H.S. Anand for the
Appellants.
M.K. Banerjee, Solicitor General, B. Datta, Additional
Solicitor General, T.V.S.N. Chari, Ms. Sunita and Ms. Vrinda
Grover for the Respondents.
The Judgment of the Court was delivered by
PATHAK, CJ. These appeals are directed against the
judgment of the High Court of Andhra Pradesh dismissing
several writ petitions filed by the appellants challenging
assessments made under the Andhra Pradesh General Sales Tax
Act 1957 on the value of packing material at the rate ap-
plicable to goods packed therein.
The appellants in some of the appeals are manufacturers
of or dealers in beer, the appellants in the other appeals
are manufacturers of or dealers in cement. The beer is sold
in bottles packed in cartons. The cement is sold in gunnies.
Section 5 of the Andhra Pradesh General Sales Tax Act
(hereinafter referred to as ‘the Act’) provides for the levy
of sales tax on the turnover of goods at the rates specified
in that provision. In the case of goods mentioned in the
First Schedule to the Act tax is leviable at the rates, and
at the point of sale, specified therein. In the case of
goods mentioned in the Sixth Schedule, likewise tax is
leviable at the rates and at the points specified therein.
Item 19 of the First Schedule speaks of ‘Containers other
than gunnies and bottles’. These goods are subject to tax at
the rate of 5 paise in the rupee at the point of first sale
in the State. Item 123 of the First Schedule enumerates
‘glass and glassware’, which is subject to sales tax at 9
paise in the rupee at the point of first sale in the State.
In respect of cement tax is leviable by reference to item 18
of the First Schedule at the rate of 10 paise in the rupee
at the point of first sale in the State, while gunnies,
formerly mentioned under item 67 of the First Schedule, and
now included in item 157 of that Schedule, are subject to
tax at the point of first sale in the State. And beer is
covered by item 1 of the Sixth Schedule under the category
‘Country Liquor’ taxable at the rate of 10 paise in the
rupee at every point of sale other than at the point of last
sale, at which point the rate is 5 paise per rupee.
309
Clause (s) of Section 2 of the Act defines ‘turnover’ to
mean the total amount set out in the bill of sale (or if
there is no bill of sale, the total amount charged) as the
consideration for the sale or purchase of goods (whether
such consideration be cash, deferred payment or any other
thing of value) including any sums charged by the dealer for
anything done in respect of goods sold at the time of or
before the delivery of the goods and any other sums charged
by the dealer, whatever be the description, name or object
thereof; or the aggregate of amounts charged under section
5-C.
With effect from 8 July, 1983, section 6-C was inserted
in the Act by Andhra Pradesh Act No. 11 of 1984, and it
provides:
‘Notwithstanding anything in sections 5 and
6-A, where goods packed in any materials are
sold or purchased, the materials i,n which the
goods are so packed shall be deemed to have
been sold or purchased along with the goods
and the tax shall be leviable on such sale or
purchase of the materials at the rate of tax,
if any, as applicable to the sale, or, as the
case may be, purchase of goods themselves.’
The net turnover of a dealer assessable to tax is deter-
mined under rule 6 of the Andhra Pradesh General Sales Tax
Rules, after deducting the amount specified in clauses (a)
to (1) of that rule from the total turnover. Of these
clauses, clause (g) speaks of:
‘Amounts relating to charges for services
rendered in connection with the packing of
goods when specified and charged for by the
dealer separately, without including them in
the price of goods sold.’
The appellants filed the writ petitions, out of which
the present appeals arise, in the High Court at Hyderabad
challenging the assessments to sales tax made on the turn-
over of packing material employed either by way of bottles
for containing beer or by way of gunny bags for packing
cement. The appellants challenged the application of such
rate in assessments made in relation to the period before 8
July, 1983. The appellants also challenged the application
of that rate proposed pursuant to s. 6C in show cause no-
tices issued by the concerned authority. While dismissing
the writ petitions, the High Court has proceeded on the
basis that having regard to the nature of the goods and to
the trade practice in respect of beer and cement the con-
tainers were necessary concomitants in the transactions, and
the transfer of
310
property in the containers was incidental or unavoidable,
that the sale transactions had to be regarded as composite
and integrated sales of the containers and their contents
and what was really sold was the bottled beer or the cement
packed in gunny bags. The learned Judges observed further
that even where money was paid to the dealer as security
deposit refundable on the return of the bottles the sale of
the bottle could not be treated as an independent transac-
tion different and distinct from the transaction of sale of
the beer. So also was the case in the sale of cement con-
tained in gunnies. The learned Judges expressed the view
that the consideration paid by the purchaser to the dealer
consists not only of the price of the contents, namely, beer
or cement, but also includes the price of the containers,
that is the bottles and the cartons in the case of beer and
gunnies in the case of cement.
It is commonly accepted that a transaction of sale may
consist of a sale of the product and a separate sale of the
container housing the product with respective sale consider-
ations for the product and the container separately; or it
may consist of a sale of the product and a sale of the
container but both sales being conceived of as integrated
components of a single sale transaction; so., what may yet
be a third case, it may consist of a sale of the product
with the transfer of the container without any sale consid-
eration therefore. The question in every case will be a
question of fact as to what are’. the nature and ingredients
of the sale. It is not right in law to pick on one ingredi-
ent only to the exclusion of the others and deduce from it
the character of the transaction. For example, the circum-
stance that the price of the product and the price of the
container are shown separately may be evidence that two
separate transactions are envisaged, but that circumstance
alone cannot be conclusive of the true character of the
transaction. It is not unknown that traders may, for the
advantage of their trade, show what is essentially a single
sale transaction of product and container, or a transaction
of a sale of the product only with no consideration for the
transfer of the container, as divisible into two separate
transactions, one of sale of the product, and the other a
sale of the container, with a distinct price shown against
each. Similarly where a deposit is made by the purchaser
with the dealer, the deposit may be pursuant to a transac-
tion where there is no sale of the container and its return
is contemplated, and in the event of its not being returned
the security is liable to forfeiture. Alternatively, it may
be a case where the Container is sold and the deposit repre-
sents the consideration for the sale, and in the event of
the container being returned to the dealer the deposit is
returned by way of consideration for the re-sale. In every
case, the assessing authority is obliged to ascertain the
311
true nature and character of the transaction upon a consid-
eration of all the facts and circumstances pertaining to the
transaction. That the problem almost always requires factual
investigation into the nature and ingredients of the trans-
action has been repeatedly emphasised by this Court. In
Hyderabad Deccan Cigarette Factory v. The State of Andhra
Pradesh, [1966] 17 STC 624 this Court said:
“It is not possible to state as a proposition
of law that whenever particular goods were
sold in a container the parties did not intend
to sell and buy the container also. Many cases
may be visualized where the container is
comparatively of high value and sometimes even
higher than that contained in it. Scent or
whisky may be sold in costly containers. Even
cigarettes may be sold in silver or gold
caskets. It may be that in such cases the
agreement to pay an extra price for the con-
tainer may be more readily implied. In the
present case, if we may say so with respect,
all the authorities, including the High Court,
dealt with the question as a question of law
without considering the relevant factors which
would sustain or negative any such
agreement …….
A perusal of the orders of the various author-
ities and the High Court shows that a simple
question of fact has been sidetracked by
copious citations. Whether there was an agree-
ment to sell the packing materials is a pure
question of fact and that question cannot be
decided on fictions or surmises. That is what
has happened in this case. The Commercial Tax
Officer invoked a fiction; the, Assistant Com-
missioner of Commercial Taxes relied upon the
doctrine of “finished product”; the Appellate
Tribunal relied upon surmises; and the High
Court, on the principle of implied agreement.
But none has tackled the real question. The
burden lies upon the Commercial Tax Officer to
prove that a turnover is liable to tax. No
doubt he can ask the assessee to produce the
relevant material; and if he does not produce
the same, he may draw an adverse inference
against him. But, he must decide the crucial
question whether the packing materials were
subject of the agreement of sale, express or
implied. To ascertain the said fact he can
rely upon oral statements, accounts and other
documents, personal enquiry and other relevant
circumstances such as the nature and the
purpose of the packing materials used.”
312
Again, in Commissioner of Taxes, Assam v. Prabhat Marketing
Co., Ltd., [1967] 19 STC 84 this Court accepted as well-
founded submission that the parties may have intended in the
circumstances to sell hydrogenated oil apart from the con-
tainers, and the mere fact that the price of the containers
was not separately fixed would make no difference in the
assessment of sales tax, and went on to observe:
“It is well-established that in order to
constitute a sale it is necessary that there
should be an agreement between the parties for
the purpose of transferring title to goodS,
the agreement must be supported by money
consideration, and that as a result of the
transaction the property should actually pass
in the goods. Unless all the ingredients are
present in the transaction there could be no
sale of goods and sales tax cannot be imposed
State of Madras v. Gannon Dunkerley and Co.
(Madras) Ltd., [1959] S.C.R. 379
…………………………………………………….
The question as to whether there is an agree-
ment to sell packing material is a pure ques-
tion of fact depending upon the circumstances
found in each case.”
There can be as many different kinds of transactions as
the circumstances of the case may require either by reason
of prevailing trade practice or market conditions or person-
al convenience, and as human ingenuity may devise for bona
fide reducing the burden of tax. In The State of Karnataka
v. Shaw Wallace and Company Ltd., [1981] 48 STC 169 the High
Court of Karnataka pointed out that there was an agreement
to sell the bottles and crates in which the liquor was
conveyed and there was also an agreement in regard to the
price of those containers, and therefore the turnover in
regard to those items had to be determined and the appropri-
ate rate of sales tax had to be charged as provided in the
Karnataka Sales Tax Act. Reference was made to the require-
ment in the Karnataka Excise Act, 1966 that the liquor had
to be sold in sealed containers but that, the High Court
said, did not automatically lead to the conclusion that the
same rate of sales tax was applicable to containers also. It
was observed that such a presumption could not be made,
specially when separate rates were specified in the Sales
Tax Act in regard to the containers and the contents. In
Arlem Breweries Ltd. v. The Assistant Commissioner of Sales
Tax, Panaji, [1983] 53 STC 172 the Panaji Bench of the High
Court of Bombay noted that item 22 of the First Schedule to
the Goa, Daman and Diu Sales Tax Act, 1964, which spoke of
the item “foreign liquor and
313
India-made foreign liquor” indicated that the tax was levied
only on the liquor and not against the bottle and liquor or
bottled liquor. The sale was of beer and the bottles were
treated separately. It was also pointed out that the agree-
ment by the assessee with the wholesaler did not create any
obligation on the purchasers to return the bottles nor did
it fix any time for their return. The payment of an amount
for the bottles in advance as a term of the sale was re-
ferred to as cost of the bottles and this, the High Court
said, constituted the sale price of the bottles although
described as a deposit. In M/s Jamana Flour & Oil Mill (P)
Ltd. v. State of Bihar, AIR 1987 SC 1207 this Court affirmed
the finding that there was an implied agreement of the sale
of gunny bags. It said:
“Admittedly gunny bags are a different commod-
ity and sale thereof is assessable to tax at 4
1/2 %. It is not disputed that the appellant
bought gunny bags for packing wheat products
for the purpose of sale. The control order
contemplates a net weight which means that the
weight of the bag is included in the price to
be charged by the dealer. Under the Explana-
tion when packing is done in cloth-bags, a
higher rate is admissible. The scheme clearly
suggests that the price of gunny bags is
inclusive and where cloth-bag is used, a
higher price over and above what has been
provided for ordinary containers is
permitted.”
It is, therefore, perfectly plain that the issue as to
whether the packing material has been sold or merely trans-
ferred without consideration depends on the contract between
the parties. The fact that the packing is of insignificant
value in relation to the value of the contents may imply
that there was no intention to sell the packing, but where
any packing material is of significant value it may imply an
intention to sell the packing material. In a case where the
packing material is an independent commodity and the packing
material as well as the contents are sold independently, the
packing material is liable to tax on its own footing. Wheth-
er a transaction for sale of packing material is an inde-
pendent 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;
314
3. The packing is capable of being reused after the con-
tents have been consumed;
4. The packing is used for convenience of transport and
the quantity of the goods as such is not dependent on pack-
ing;
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 one case, Punjab Distilling Industries Ltd. v. The Com-
missioner of Income Tax, Simla, [1959] Supp. 1 SCR 683 where
the bottles were sold by the assessee under a buy-back
scheme, the security deposit for the return of the bottles
was held to be merely in the nature of an incentive to the
buyer to return the bottles.
Turning to s. 6C of the Act, it seems to envisage a case
where it is the goods which are sold and there is no actual
sale of the packing material. The section provides by legal
fiction that the packing material shall be deemed to have
been sold along with the goods. In other words, although
there is no sale of the packing material, it will be deemed
that there is such a sale. In that event, the section de-
clares, the tax will be leviable on such deemed sale of the
packing material at the rate of tax applicable to the sale
of the goods themselves. It is difficult to comprehend the
need for such a provision. It can at best be regarded as a
provision by way of clarification of an existing legal
situation. If the transaction is one of sale of the goods
only, clearly all that can be taxed in fact is the sale of
the goods, and the rate to be applied must be read in the
case of such goods. It may be that the price of the goods is
determined upon a consideration of several components,
including the value of the packing material, but nonetheless
the price is the price of the goods. It is not open to
anyone to say that the value of the different components
which have entered into a determination of the price of the
goods should be analysed and separated, in order that dif-
ferent rates of tax should be applied according to the
character of the component (for example, packing material).
What s. 6C intends to lay down is that even upon such analy-
sis the rate of tax to be applied to the component will be
the rate applied to the goods themselves. And that is for
the simple reason that it is the price of the goods alone
which constitutes the transaction between the dealer and the
purchaser. No matter what may be the component which enters
into such price, the parties understand between them that
the purchaser is paying the price of the goods. Section 6C
merely clarifies and explains that
315
the components which have entered into determining the price
of the goods cannot be treated separately from the goods
themselves, and that no account was in fact taken of the
packing material when the transaction took place, and that
if such account must be taken then the same rate must be
applied to the packing material as is applicable to the
goods themselves. We find it difficult to accept the conten-
tion of the appellants that a rate applicable to the packing
material in the Schedule should be applied to the sale of
such packing material in a case under s. 6C, when in fact
there was no such sale of packing material and it is only by
legal fiction, and for a limited purpose, that such sale can
be contemplated. In the circumstances, no question arises of
s. 6C being constitutionally discriminatory, and therefore
invalid.
In the appeals before us, we find that the High Court
has proceeded on the assumption that the transactions are
covered by trade practice and having regard to the nature of
the goods it has inferred that what is charged is the price
of the bottled beer or of cement packed in gunny bags, and
reference has also been made to the Excise Law and the
Cement Control Order requiring that the liquor or the ce-
ment, as the case may be, must be sold in bottles or in
gunny bags respectively. We are constrained to observe that
no attempt has been made by the tax authorities to ascertain
the facts of each case and to determine what were the actual
ingredients of the contract and the intention of the par-
ties. Assumptions have been made when what was required was
a detailed investigation into the facts. We have indicated
earlier the several possibilities which are open in cases of
this kind, and how the ultimate conclusion can be vitally
affected by the tests to be applied. Because of the lack of
adequate and clear factual material, the High Court also was
compelled to proceed on the basis of generalised statements
and broad assumptions. We are unable, in the circumstances,
to hold that the cases can be regarded as disposed of final-
ly. It is regrettable but the cases must go back for proper
findings on facts to be ascertained on fuller investigation.
In the circumstances, the appeals are allowed, the
impugned judgment and order of the High Court in the several
cases are set aside and the cases are remanded to the High
Court for further consideration and disposal in the light of
the observations made by us. In the case of the writ peti-
tions before us, the assessing authority will allow the
dealer to show cause and thereafter upon evidence led before
it determine the matter. There is no order as to costs.
R.S.S. Appeals
allowed.
316
