Case: Raj Steel &amp; Ors. Etc. Etc Vs. State Of A.P. &amp; Anr. Etc. Etc

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 one case, Punjab Distilling Industries Ltd. v. CIT (1959 Supp 1 SCR 683 : AIR 1959 SC 346 : (1959) 35 ITR 519 ), 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. 10. Turning to Section 6-C 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 declares, 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 different rates of tax should be applied according to the character of the component (for example, packing material). What Section 6-C intends to lay down is that even upon such analysis 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 6-C merely clarified and explains that 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 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 Section 6-C, 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 Section 6-C being constitutionally discriminatory, and therefore invalid. 11. 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 cement, 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 parties. 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 finally. It is regrettable but the cases must go back for proper findings on facts to be ascertained on fuller investigation. 12. 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 observation made by us.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]11. 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 cement, 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 parties. 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 finally. It is regrettable but the cases must go back for proper findings on facts to be ascertained on fuller investigation12. 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 observation made by us. In the case of the writ petitions 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 costs9. It is, therefore, perfectly plain that the issue as to whether the packing material has been sold or merely transferred 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. Whether a transaction for sale of packing material is an independent transaction will depend upon several factors, some of them being1. 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 product10. Turning to SectionC 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 declares, 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 different rates of tax should be applied according to the character of the component (for example, packing material). What SectionC intends to lay down is that even upon such analysis 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. SectionC merely clarified and explains that 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 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 Section, 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 SectionC being constitutionally discriminatory, and therefore invalid