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

2. 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 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 items 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 rupee6. 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 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 July 8, 1983. The appellants also challenged the application of that rate proposed pursuant to Section 6-C in show-cause notices 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 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 observed further that even where money was paid to the dealer as security deposit refundable on the return of the bottles the sale of he bottle could not be treated as an independent transaction different and distinct from the transaction of sale of the beer. So also was the case in the sale of cement contained 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

Court's reasoning:
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