Durga Cement Company Limited v. State Of Bihar — 1998 DIGILAW 651 (PAT)

Judgment Aftab Alam, J. 1. The petitioner is a company engaged in the manufacture and sale of cement. Cement for being sold is packed in gunny bags which the petitioner purchases from time to time from different parties. On the purchase of gunny bags it duly pays sales tax at the rate prescribed for gunny bags (earlier 4% and later 7%) in the notification issued under Sec. 12 of the Bihar Finance Act, 1981 (hereinafter referred to as the Act). For the sale of cement manufactured by the petitioner, the price of cement is fixed on Metric ton basis on which sales tax is realized from the customers at the rate of 11% as fixed for cement in the notification issued under Sec. 12; the price of the packing material, the gunny bag is separately charged from the customers which includes sales tax at the same rate as paid by the petitioner at the time of its purchase. Further case of the petitioner is that in the cash memo/credit memo issued by it to the purchasers the sale of cement and the sale of bag containing the cement are mentioned separately with the respective prices of the two articles being shown to have been charged separately. 2. The petitioner seeks to challenge the assessment order for the period 1995-96 (Annexure-3) passed by the Deputy Commissioner of Commercial Taxes, Hazaribagh under Sec. 17(2)(a) of the Act. From the impugned order, it appears that in the return filed by the petitioner the amount of the gross turn over was shown at Rs. 5,84,212.86 paise with the following break up; NITIN(659).htm The Deputy Commissioner accepted the figures returned by the petitioner but questioned the amount of Rs. 31,58,340.00 as being shown separately to be taxed at the lower rate of 7%. The relevant part of the order translated into English, would read as follows: In connection with the sale of cement the dealer has shown the sale of packing materials separately in its bills on which sales tax has been realised at the rate of 7% and paid to (to the department) at the same rate. This appears to be incorrect because whenever cement is sold it is sold with packing material and the two articles (cement and packing material) and not sold separately. This appears to be incorrect because whenever cement is sold it is sold with packing material and the two articles (cement and packing material) and not sold separately. In any event cement cannot be sold without being packed in gunny bags and specially when it is transported on trucks it has to be packed in gunny bags. Thus the two articles being sold separately is beyond comprehension. Further, in the light of the recent decision of the Supreme Court in the case of Raj Steel V/s. Andhara Pradesh a separate sale of the packing material cannot be accepted in accordance with the rules. Hence, it appears appropriate to subject the amount of Rs. 31,58,340.00 paise shown by the dealer as the sale price of the packing material also to tax @ 11% as leviable on the sale of cement. 3. The Supreme Court decision in Raj Steel and Ors. V/s. State of Andhara Pradesh and Ors. -- , was rendered in a batch of appeals. The controversy in those appeals related to the rates at which tax could be levied on bottles and gunny bags used as container and packing material for beer and cement respectively. It is further to be noted that the controversy had arisen as a result of the insertion of Sec. 6-C in the Andhara Pradesh General Sales Tax Act. The provision of Sec. 6-C was as follows: Notwithstanding anything in Secs. 5 and 6-A, where the goods packed in any materials are sold or purchased, the materials in 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. 4. On the basis of the aforequoted provision, the High Court held that in respect of cement (as also beer) the packing bags were necessary concomitants in the transaction, 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. 5. 5. In appeal against the High Court judgment, the Supreme Court took the view that Sec. 6-C was nothing more than a clarification of an existing legal position (See para 10 of the reported judgment). It further observed that Sec. 6-C simply clarified and explained that the factors that went into fixing the price of the goods could not 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. 6. What, however, appears to me to be the ratio of the decision and what, in fact is of importance for our present purpose is that the question concerning the nature and ingredients of a sale would almost always be a question of fact to be decided on the facts and circumstances of each case. It will be useful to reproduce here paragraph 7 of the judgment which is as follows: 7. It is commonly accepted that a transaction of sale may consist of 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 a third case, it may consist of sale of the product with the transfer of the container without any sale consideration therefor. 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 ingredient only to the exclusion of the others and deduce from it the character of the transaction. For example, the circumstance 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. For example, the circumstance 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 as ale of the product only with no consideration for the transfer of the container, as devisable into two separate transactions, one of a 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 transaction 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-case where the container is sold and the deposit represents 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 resale. 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 into the nature and ingredients of the transaction has been repeatedly emphasized by this Court. (Emphasis added) Then after referring to some of the earlier decisions of the Supreme Court, it was laid down in paragraph 9 of the judgment as follows: 9. 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 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. In 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, 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 re-used 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 as integrated part of the sale of the product. (Emphasis added) 7. Having thus stated the legal position, the judgment (in paragraph 11) found that instead of ascertaining the facts of each case and on that basis determining what were the actual ingredients of the contract and the intention of the parties the High Court had proceeded on the assumption that the transactions were covered by trade practice and having regard to the nature of the goods, it was simply inferred that what was charged was the price of the cement packed in gunny bags. It was observed that assumptions were made when what was required was a detailed investigation into the facts. The Supreme Court accordingly remitted the cases back for proper findings after a careful examination of all the material facts. 8. Mr. B. Poddar, learned Counsel appearing for the petitioner heavily relied upon the decision in Raj Steel. He submitted that the Dy. Commissioner of Commercial Taxes had made a reference to the decision without application of mind and without realising that the ratio of the decision in fact supported the petitioners contention. Mr. Poddar submitted that practically all the factors enumerated in paragraph 9 of the judgment supported the petitioners case that the transactions concerning the gunny bags were independent transactions and quite separate from the sale of cement. 9. Mr. Poddar submitted that practically all the factors enumerated in paragraph 9 of the judgment supported the petitioners case that the transactions concerning the gunny bags were independent transactions and quite separate from the sale of cement. 9. It is noted above that the central theme of the decision in Raj Steel is that the question regarding the nature and ingredients of a sale is a question of fact to be decided on the facts and circumstances of each case. On a perusal of the impugned order, I am satisfied that the Deputy Commissioner of Commercial Taxes has equally founded his decision on assumptions and surmises instead of making an investigation to find out what were the actual ingredients of the contract and the intention of the parties in the different transactions of sale of cement by the petitioner. The observations made in paragraph 11 of the judgment in Raj Steel applies with full force to the impugned order. 10. But before saying the last word in this case, it would be necessary to take note of two more decisions of the Supreme Court coming after Raj Steel, brought to our notice by Mrs. I.S. Choudhary, S.C.I, appearing for the revenue. She first cited before us the Supreme Court decision in Vasavadatta Cements V/s. State of Karnataka and Anr. -- . In Vasavadatta Cements, the Supreme Court dealt with the matter, as in this case, of the supply of cement packed either in gunny bags or in plastic bags. The controversy concerning the rate of tax leviable on the packing material for cement arose as a result of the introduction of Sub-sec. (3-D) in Sec. 5 of the Karnataka Sales Tax Act. The controversy concerning the rate of tax leviable on the packing material for cement arose as a result of the introduction of Sub-sec. (3-D) in Sec. 5 of the Karnataka Sales Tax Act. Sub-section (3-D) of Sec. 5, which brought the packing material within the purview of the Act and made it exigible to tax was as follows: 3-D Notwithstanding anything contained in the Act where goods sold or purchased are contained in containers or are packed in any packing materials liable to tax under this Act, the rate of tax and the point of levy applicable to turn over of such containers or packing materials, as the case may be, shall whether the containers or the packing materials have already been subjected to tax under this Act or not or whether the price of the containers or of the packing materials is charged separately or not, be the same as those applicable to goods contained or packed; provided that no tax under this Sub-sec. shall be leviable if the sale or purchase of goods contained in such containers or packed in such packing materials is exempt from tax under this Act. 11. In Vasavadatta Cements, the Supreme Court observed that Sec. 5(3-D) of the Karnataka Act was comparable to Sec. 6- C of the Andhara Pradesh Act which had come up for consideration in Raj Steel. Following then the observations made in paragraph 11 of the judgment in Raj Steel the appeals in Vasavadatta Cements were allowed in similar terms by passing the following order: 13. The said observations are equally applicable to the present case involving construction of Sec. 5(3-D) of the Act. The liability for sales tax on the gunny bags used for packing the cement sold by the appellants has to be considered having regard to the facts of each case after determining what are the ingredients of the contract and the intention of the parties in accordance with the decision of this Court in Raj Steel case. (Emphasis added) 12. The next decision in line was in Premier Breweries V/s. State of Kerala -- . This decision, by a larger bench of three Hon ble Judges also noticed the earlier decisions in Raj Steel and Vasavadatta Cements. The controversy in Premier Breweries related to the rate of tax leviable on cardboard cartons used for packing bottled liquor. (Emphasis added) 12. The next decision in line was in Premier Breweries V/s. State of Kerala -- . This decision, by a larger bench of three Hon ble Judges also noticed the earlier decisions in Raj Steel and Vasavadatta Cements. The controversy in Premier Breweries related to the rate of tax leviable on cardboard cartons used for packing bottled liquor. The case of the dealer was that the cartons could only be taxed @ 8% as provided under the relevant entry in the Schedule to the Act but the revenue maintained that the levy of tax on those cartons would be @ 50% applicable to sale of liquor. The dispute in Premier Breweries centered around Sub-sections 5 and 6 of Sec. 5 of the Kerala General Sales Tax Act which are as follows: 5. (5) Notwithstanding anything contained in Sub-sec. (1) or Sub-sec. (2), but subject to Sub-sec. (6), where goods sold are contained in containers or are packed in any packing materials, the rate of tax and the point of levy applicable to the containers, or packing materials, as the case may be, shall, whether the price of the containers or packing materials is charged separately or not, be the same as those applicable to goods contained or packed, and in determining turn over of the goods, the turnover in respect of the containers or packing materials shall be included therein. (6) Where the sale or purchase of goods contained in any containers of packed in any packing materials is exempt from tax, then the sale or purchase of such containers or packing materials shall also be exempt from tax. 13. It is further significant to note that in Premier Breweries the dealer relied on the two earlier decisions in Raj Steel and Vasauadatta Cements. The larger bench in Premier Breweries took the view that the decision in Vasavadatta Cements had erroneously proceeded on the premise that Sec. 6-C of the Andhara Act and Sec. 5(3-D) of the Karnataka General Sales Tax Act were similar and comparable. In fact the two provisions were quite dissimilar and the marked dis-similarity between the two Sections was overlooked in the Vasavadatta Cements. 14. In fact the two provisions were quite dissimilar and the marked dis-similarity between the two Sections was overlooked in the Vasavadatta Cements. 14. In so far as Raj Steel was concerned, the decision in Premier Breweries observed that in that judgment Pathak, CJ, had given a restricted meaning to the deeming provision of Sec. 6-C of the Andhara Act and had thereby ruled out the possibility of taxing the packing material in cases where the packed goods were alone sold without there being any actual sale of the packing materials. It was, however, further noted that the difficulty arising out of the restricted meaning given to Sec. 6-C of the Andhara Act was over come by making the intention of the Legislature explicitly clear in Sec. 5(5) of the Kerala Act. The relevant passage in this regard is to be found in paragraph 16 of the decision in Premier Breweries which can be usefully quoted here. 16. This difficulty arising out of the restricted meaning given to the deeming clause in Sec. 6-C of the Andhara Act has been obviated by specific provisions of Sec. 5(5) of the Kerala Act by providing that the turnover of the goods will include the turnover in respect of the packing materials or the containers. The containers or the packing materials will be taxed at the same point and at the same rate at which the goods are to be taxed. This rule will apply whether the price of the containers or the packing materials is charged separately or not. Therefore, even in a case where the containers are separately sold, the turnover of the goods will include the turnover of the containers and the appropriate rate of tax on such turnover will be the rate of tax payable on the goods. 15. Thus having distinguished the decision in Raj Steel the following observations were made (in paragraphs 19 and 20 of the judgment) concerning the decision in Vasavadatta Cements. 19. We are of the view that in Vasavadatta case, this Court overlooked the marked dissimilarity between Sec. 6-C of the Andhara Act and Sec. 5(3-D) of the Karnataka General Sales Tax Act. Thus having distinguished the decision in Raj Steel the following observations were made (in paragraphs 19 and 20 of the judgment) concerning the decision in Vasavadatta Cements. 19. We are of the view that in Vasavadatta case, this Court overlooked the marked dissimilarity between Sec. 6-C of the Andhara Act and Sec. 5(3-D) of the Karnataka General Sales Tax Act. We are also of the view that Sub-sections (5) and (6) of the Kerala General Sales Tax Act will have to be construed uninfluenced by the decision of this Court in Raj Steel case where Pathak, CJ construed the deeming provisions in Sec. 6-C of the Andhara Act in a narrow sense. Sec. 6-C did not contain any specific provisions for including the turnover of the containers of the packing materials in the turnover of the goods. There were also no specific provisions in the Andhara Act to levy tax on the packing materials and the containers at the rate applicable to the goods even in a case where the price of the containers or the packing materials were charged, separately. We are also of the view that the mere fact that the containers and the goods were sold separately or charged separately will not make any difference in the matter of computation of the turnover of the goods and determination of tax or the rate of tax and the point at which the tax will be levied under Sec. 5(5) of the Keraia Act. 20. Sec. 5(3-D) of the Karnataka Act, if anything, is more specific than Sec. 5(5) of the Kerala Act which deals with cases where the goods sold or purchased are contained in containers or are packed in any packing material. It specifically provides that the rate of tax and the point of levy applicable to turnover of such containers or packing materials will be the same as those applicable to the goods contained or packed. This rule will apply even in a case where the containers or the packing materials had already been subjected to tax under the Act. It specifically provides that the rate of tax and the point of levy applicable to turnover of such containers or packing materials will be the same as those applicable to the goods contained or packed. This rule will apply even in a case where the containers or the packing materials had already been subjected to tax under the Act. It also provides that the rule will apply whether the price of the containers or the packing materials is charged separately or not." In view of these clear provisions of Sec. 5(3-D) of the Karnataka Act and the corresponding provisions of Sec. 5(5) of the Kerala Act there is no basis for the argument that if the price of the goods and the price of the containers or packing materials are separately charged, the provisions of the aforesaid two Sections will not be applied at all. In the context of these provisions, there was no scope for invoking the principle laid down in Raj Steel case for making any inquiry as to whether the containers or packing materials were sold along with the goods or separate bill were made in respect of them or whether they were separately charged. The law is quite clear that when the goods contained in containers or packed in packing materials are sold the containers and the packing materials will have to be taxed at the same rate at which the goods are liable to be taxed. It will not make any difference if the price payable for the containers or packing materials are shown separately in the bills raised by the seller. 16. Thus the position that emerges from the three Supreme Court decisions can be summed up as follows: (i) Raj Steel arose from Sec. 6-C of the Andhara Pradesh General Sales Tax Act. In that case the Supreme Court took the view that Sec. 6-C simply stated what otherwise too was the correct legal position. It accordingly enunciated some general principles for determining the nature and ingredients of a sale; that is to say, whether the packing material was sold or it was merely transferred without consideration depending upon the contract between the parties. It accordingly enunciated some general principles for determining the nature and ingredients of a sale; that is to say, whether the packing material was sold or it was merely transferred without consideration depending upon the contract between the parties. (ii) Vasavadatta Cements followed Raj Steel proceeding on the premise, held to the incorrect in the later decision, that the provisions contained in Section 5(3-D) of the Karnataka Act was similar and comparable to Sec. 6-C of the Andhara Act. (iii) In Premier Breweries it was held that the relevant provisions in the Karnataka and the Kerala Acts were quite dissimilar to the provision in the Andhara Act and Sec. 5(5) of the Kerala Act was required to be interpreted uninfluenced by the decision in Raj Steel where the provision of the Section 6-C of the Andhara Act was given a restricted and narrow meaning. On an interpretation of Sub-sections 5 and 6 of Sec. 5 of the Kerala Act it, was held that in calculating the turnover of the goods, the turnover of the packing materials will have to be included and the entire turn over will be subjected to tax at the rate payable for the packed goods; it will make no difference if the packing materials are shown to have been sold and charged separately. 17. Now, coming back to the case in hand, the first thing to be stated is that no provision(s) similar or comparable to the aforementioned three provisions (in the Andhara, Karnataka and Kerala Acts respectively) was brought to our notice in the Bihar Finance Act. There being no similar or comparable provisions to Sub-sections (5) and (6) of Sec. 5 of the Kerala Act, the decision in Premier Breweries will be of no help in deciding this dispute arising under the provisions of the Bihar Finance Act and one, therefore, must fall back on the general principles enunciated in Raj Steel. Having given my careful consideration to this matter, I am of the view that between the two Supreme Court decisions, it is Raj Steel which provides the necessary aid for deciding this case, arising under the Bihar Finance Act having no provisions comparable to the provisions in the Kerala and Karnataka Acts or even the relevant provisions in the Andhara Act. 18. 18. As noted above, Raj Steel laid down that the nature and the ingredients of a sale depended upon the intention of the selling and the buying parties and these were essentially questions of fact. What was said in paragraph 16 of the judgment in Raj Steel applies with full force to the impugned order. Following those observations and directions, I am compelled to hold that this case must go back to the assessing authority for determining the true nature and ingredients of the transactions of sale of cement made by the petitioner during the relevant period on a consideration of all the material facts and circumstances as indicated in paragraphs 7 and 9 of the decision in Raj Steel. 19. In the result, the impugned order as contained in Annexure 3 is set aside and this writ petition is allowed to the extent indicated above. There will be, however, no order as to costs. Sachchidanand Jha, J. 20 I agree.