KUKREJA UDYOG v. COMMISSIONER OF SALES TAX — 1985 DIGILAW 225 (MP)

JUDGMENT : ( 1. ) THIS is a petition under Article 226 of the constitution of India, whereby the petitioner seeks a writ of certiorari for quashing the order (Annexure C) dated 27-3-1982 of the Sales Tax Officer, gwalior, and order (Annexure D) dated 30th July 1982, of the Deputy commissioner, Sales-tax, Gwalior, to the extent that these orders do not allow the deduction of a sum of Rs. 74,505 representing the cost of packing materials under section 2 (r) (ii) of the Madhya Pradesh General Sales Tax act, 1958 (for short, hereinafter referred to as the Act) and they impose a penalty under section 43 (1) of the Act. ( 2. ) THE short facts leading to the present petition are these : 2. 01. The petitioner is a registered dealer under the Act. It deals in the manufacture of sale of foot-wear. For the assessment year 1-4-1979 to 31st March 1980, the petitioner had filed quarterly returns. In these quarterly returns it had declared a total gross turn-over to the tune of rs. 12,92,343. 50 and had deposited, as per its calculation in these returns, an amount of sales-tax to the tune of Rs. 1,13,571. 50 p. The petitioner had in these returns claimed a deduction under section 2 (r) (ii) of the Act of Rs. 1,88,070. 51 p. in respect of the cost of the tax-paid goods including rs. 74,505. 95 p. being the cost of the packing material. The remaining amount claimed as deduction represented the cost of the tax-paid raw-material. 2 02. At the time of assessment, the petitioner, realising that it had wrongly claimed a deduction in respect of tax-paid raw-material, voluntarily submitted computation of its sales and purchases along with an explanation for the excess claim of deduction in the quarterly returns and paid a further sum of Rs. 3,891. 25 p. which it was required to pay by way of tax, which, according to this computation, it was further required to pay. In this computation, the petitioner had maintained its claim of deduction in respect of the tax-paid packing material worth Rs. 74,505. 95 p. under section 2 (r) (ii) of the Act. 2. 03. The assessing authority enhanced the gross turnover from rs. 12,92,343. 50 p. to Rs. In this computation, the petitioner had maintained its claim of deduction in respect of the tax-paid packing material worth Rs. 74,505. 95 p. under section 2 (r) (ii) of the Act. 2. 03. The assessing authority enhanced the gross turnover from rs. 12,92,343. 50 p. to Rs. 12,93,000 and, after giving statutory deduction of inter-State sales and under section 2 (r) (ii) of the Act, determined the taxable turnover at Rs. 11,34,923 and assessed the tax on this sum at the rate of 10 per cent vide its order (Annexure C ). The assessing authority disallowed the claim of the petitioner of a deduction under section 2 (r) (ii) in respect of the tax-paid material of Rs. 74,505. 95 p. The assessing authority imposed a penalty of Rs. 12,000 under section 43 (1) of the Act for submission of incorrect returns on the ground that by claiming wrong deduction, payment of tax was evaded. 2. 04. Being aggrieved by the order (Annexure C) of the assessing authority, respondent No. 3 herein, the petitioner preferred a revision under section 39 of the Act before the Deputy Commissioner of Sales Tax, respondent No. 2 herein, who, by his order (Annexure D) dated 30th July 1982: (i) accepted the gross turnover at Rs. 12,92,344 as returned and disclosed by the assessee; (ii) rejected the petitioners claim for deduction of Rs. 74,505. 95 p. in respect of the tax-paid packing materials under section 2 (r) (ij) of the Act, and (iii) reduced the amount of penalty from rs. 12,000 to Rs. 2,000. The petitioner has, thus, being aggrieved by this, filed the present petition. ( 3. ) IN the light of the arguments advanced by the learned counsel for the parties, only the following two questions arise for decision in this petition: (i) whether the petitioner is entitled to a deduction of Rs. 74,505. 95 from the gross turnover under section 2 (r) (ii) of the Act, representing the cost of tax-paid packing materials by virtue of the Explanation to section 2 (o) of the Act, and (ii) whether the penalty has been imposed in violation of the provisions regarding the giving of a reasonable opportunity of being heard under section 43 (1) of the Act, inasmuch as no distinct notice to show cause against the imposition of penalty was given to the petitioner ? ( 4. ( 4. ) WE proceed to deal with the aforesaid questions ad seriatim. 4. 01. Question No. (i ). It is an admitted position that the packing materials consisted of sutli, panni and card-board boxes; that neither it was alleged nor it is found by the Tribunals below that while effecting sale of the manufactured goods by the petitioner-dealer-there was an agreement, either implied or express, for the sale of these packing materials. But the goods were sold duly packed with these materials. It is in the backdrop of this factual position that the question at hand has to be decided. In this connection, a reference has to be made to section 2 (o)and 2 (r) (ii) of the Act, as it is on the interpretation of these provisions that the decision of the question at hand depends. These provisions are set out hereinbelow: "2. In this Act, unless there is anything repugnant in the subject or context,-xxx xxx xxx (o) "sale price" means the amount payable to a dealer as valuable consideration for the sale of any goods less any sum allowed as cash discount according to ordinary trade practice but inclusive of any sum charged for anything done by the dealer in respect of the goods at the time of or before delivery thereof other than the cost of freight of delivery or the cost of installation when such cost is separately charged and the expression purchase price shall be construed accordingly. Explanation.- Where goods are sold together packing material or container, then notwithstanding anything contained in this Act the sale price of such goods shall be inclusive of the price or the cost or value of such packing material or container whether such price or cost or value is charged separately or not, as if such packing material or container were the parts of the goods sold. x x x x (r) "taxable turnover" in relation to any period means that part of a dealers turnover for such period which remains after deducting therefrom-xxx xxx xxx (ii) the sale price of goods mentioned in Parts II to VI of schedule II which are in the nature of tax-paid goods in the hands of such dealer; xxx xxx xxx. " 4. 02. Section 2 (o) of the Act was introduced vide Amendment Act no. 48 of 1976 with effect from 1st September 1976. " 4. 02. Section 2 (o) of the Act was introduced vide Amendment Act no. 48 of 1976 with effect from 1st September 1976. It defines sale price, and the Explanation added thereto clearly provides that where the goods are sold together with packing material or container, the sale price of such goods shall be inclusive of the price or the cost of such packing material or container whether such price or cost or value is charged separately or not. The Explanation further provides that when the goods are sold together with the packing material or the container, it would be deemed that such packing material or container were parts of the goods sold. 4. 03. In the instant case, it is beyond the pale of dispute that the footwears were sold together with the packing material and, as such, by virtue of the latter part of the Explanation, the packing material has to be fictionally held to be a part of those footwears which were sold. 4. 04. Now, turning to section 2 (r) (ii), we find that for arriving at the figure of taxable turnover, a deduction of the sale price of the goods mentioned in Parts II to VI of Schedule II, which are in the nature of taxable goods, is permissible. When we look to Schedule II, we find that packing material is a taxable item of goods in Part IV of that Schedule. In this back-drop, it would be pertinent at this stage to turn to the parent part of section 2 (o) of the Act which defines sale price. The definition starts with the expression means and in the latter portion the expression inclusive has also been used, i. e. , the use of the expressions means and inclusive in this definition goes to show that it is an exhaustive definition, and, thus, by the inclusive part, read together with the Explanation added to the parent part of the definition, price or cost or value of the packing material has also been included in the sale price of the main goods sold. It cannot be gainsaid that sales-tax is charged on the sale-price after the permissible deduction. One of the permissible deductions, according to section 2 (r) (ii) is in respect of the tax-paid goods. It cannot be gainsaid that sales-tax is charged on the sale-price after the permissible deduction. One of the permissible deductions, according to section 2 (r) (ii) is in respect of the tax-paid goods. In this view of the matter, when, by virtue of the fiction provided in the Explanation, the packing material is a part of the goods sold, which, in the instant case, are the footwears, and the sale price of those goods for the purpose of sales-tax, by virtue of the definition under Act, is inclusive of the price of the packing material, the price or the cost or the value of such packing material is a permissible deduction under section 2 (r) (ii ). To hold otherwise, in our opinion, would render the Explanation to section 2 (o) of the Act otiose. The definition of sale price has been provided for the purpose of determination of tax and, therefore, it has to be given effect to and, as such, any interpretation, which renders any part of the definition nugatory, would be against the canon of interpretation and the purpose with which the definition has been provided in the Act. 4. 05. It was argued on behalf of the State that unless there is an express or implied agreement for the sale of the packing material, the cost of the packing material is not deductible under section 2 (r) (ii) of the Act. The emphasis was on the expression where goods are sold together with packing material used in the Explanation. On the interpretation of this expression, it was argued that this contemplates an express or implied contract of sale of the packing material. The argument, though attractive, is devoid of substance. If this expression is used in the context of the parent part of the definition of sale price along with the latter part of the Explanation : to quote : "if such packing material or container were the parts of the goods sold", it is transparently clear that the contract of sale contemplated therein is of the main goods. The expression in the Explanation where goods are sold means the sale of the main goods; then for the purpose of determining the sale price of those goods, the Explanation clarifies that if those sold goods are delivered duly packed, the cost of the packing material will also form part of the sale price. The expression in the Explanation where goods are sold means the sale of the main goods; then for the purpose of determining the sale price of those goods, the Explanation clarifies that if those sold goods are delivered duly packed, the cost of the packing material will also form part of the sale price. The word together in the Explanation in the context means that when the goods are sold duly packed, the cost of the packing material will also be included in the sale price of the goods. The purpose of adding this Explanation is obvious. In the parent part of section 2 (o), the expression used while defining sale price, is "valuable consideration for the sale of any goods. " This may in literal interpretation mean the price of the main article sold : therefore, to obviate this, the Explanation has been added to clarify that it will also include the price of the packing material, and the packing material would also be a part of the goods, in case the goods sold are delivered duly packed. 4 06. In the light of the foregoing discussion, it is not necessary that while selling the goods there should also be a contract, either implied or express, for the sale of the packing material. By virtue of the enactment of section 2 (o) with the Explanation, the law implies sale of the packing material along with the main goods, if they are sold duly packed. A catena of authorities were cited by the learned counsel for the parties on the question as to whether sale of the goods would involve sale of packing material also or not. All these authorities either relate to the period prior to substitution of section 2 (o) by the Amendment Act No. 48 of 1976 or to a matter where section 2 (o) or a question like the instant one was not involved. Therefore, they are not relevant and are not discussed herein. It may also be stated that it is not the case in the instant case that in the sale price, i. e. , in the amount of the gross turnover, the cost of the packing material is not included. 4. 07. As a sequel to the foregoing discussion, it has to be held that the petitioner is entitled to the deduction of Rs. 4. 07. As a sequel to the foregoing discussion, it has to be held that the petitioner is entitled to the deduction of Rs. 74,505,95 p. , which are the cost of the packing material, under section 2 (r) (ii) of the Act. Question no. (i) formulated by us is answered accordingly. ( 5. ) WE now turn to the second question. The only argument advanced was that no specific notice was given to the petitioner to show cause why the penalty should not be imposed and, therefore, the imposition of the penalty is bad. 5. 01. Section 43 (1) of the Act reads as under; "if the Commissioner or the Appellate Authority in the course of any proceedings under this Act is satisfied that the dealer has concealed his turnover or the aggregate amount of purchase prices in respect of any goods or has furnished inaccurate particulars of such sales or purchases, as the case may be, or furnished a false return, the Commissioner or the appellate authority, as the case may be, after giving the dealer a reasonable opportunity of being heard, may direct that the dealer shall, in addition to the tax payable by him, pay by way of penalty a sum, which shall not be less than 20 per cent but shall not exceed one and one half times the amount of the tax, if any, which would have been avoided if the returns furnished by the dealer had been accepted as correct or the concealment of the sales or purchases or inaccurate particulars of sales or purchases had not been detected. xxx xxx xxx. " In this, the governing expression relevant for the present purpose is after giving the dealer a reasonable opportunity of being heard. In the instant case, the dealer-petitioner had himself at the time of assessment submitted an explanation and he was heard on that explanation. Therefore, it cannot be said that he had no opportunity of hearing. In this setting of the circumstances, therefore, it cannot be said that, in the instant case, the imposition of the penalty is bad for want of reasonable opportunity of hearing the petitioner. However, the quantum of penalty imposed by the deputy Commissioner, respondent No. 2 herein, needs a reconsideration in the light of our finding on question No. (i), i. e. , in view of our holding that the deduction of Rs. 74,505. However, the quantum of penalty imposed by the deputy Commissioner, respondent No. 2 herein, needs a reconsideration in the light of our finding on question No. (i), i. e. , in view of our holding that the deduction of Rs. 74,505. 95 p. is allowable under section 2 (r) (ii)of the Act. ( 6. ) IN the result, we allow the petition and, in modification of the impugned orders (Annexure C) and (Annexure D), passed by the Sales Tax officer and the Deputy Commissioner, Sales Tax, respectively, allow the deduction of Rs. 74,505. 95 p. , the cost of the packing material, under section 2 (r) (ii) of the Act and in the light thereof, we direct respondents nos. 2 and 3 to re-consider the quantum of the amount of penalty only in the matter of wrongful deduction in the quarterly returns with regard to the raw-material. ( 7. ) THE petition is disposed of as indicated hereinabove. No order as to costs. The outstanding amount of security deposit be refunded to the petitioner. Order accordingly.