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CASE NO.: Appeal (civil)  6122 of 2000

PETITIONER: The Associated Cement Companies Ltd.               

RESPONDENT: Government of Andhra Pradesh & another   

DATE OF JUDGMENT: 04/01/2006

BENCH: ASHOK BHAN & S.H. KAPADIA

JUDGMENT: J U D G M E N T

BHAN, J.           This    appeal by grant of special leave is directed against  the judgment and final order dated 8.9.2000 passed by the  High Court of judicature of Andhra Pradesh at Hyderabad  dismissing the Writ Petition No.19304 of 1996 filed by the  appellants.  In the aforesaid writ petition the appellants had  challenged the constitutional validity of Entry 18 of the First  Schedule to the A.P. General Sales Tax Act (for short "the Act")  introduced by A.P.G.S.T. (Amendment) Act, 1996 (Act No.27 of  1996) on the ground that it is violative of Article 14 of the  Constitution of India.  

Appellants are inter alia engaged in the manufacture and  sale of cement and have various factories in different locations  in India, including a unit in the State of Andhra Pradesh for  manufacturing cement.  The appellants have their marketing  division at Secunderabad from where sales of cement are  carried on.  It has its warehouses all over the State of Andhra  Pradesh.  Earlier the State was charging sales tax on the sale  of cement at the rate of 16% as notified by the State  Government, which included the value of the packing material  used for packing cement.  The value of packing material is also  charged to sales tax on the total sales turnover.  As far as  second sale is concerned Sales tax is not paid on the value of  packing materials, as sales tax is leviable only on the first sale  of packing materials.  Section 6-C was introduced by Andhra  Pradesh General Sales Tax Act (Amendment Act No.11 of  1984) which reads as under:- "6-C Levy of tax on packing material :- - Notwithstanding anything in Sections 5  and 6-A, where 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."   

The validity of this provision was challenged and this  Court in Raj Steel Vs. State of Andhra Pradesh & Others,  1989 (3) SCC 262 interpreted this Section to mean that  "Section 6-C can at best be regarded as a provision by way of

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clarification of existing legal situation".  The Court pointed out  

"Section 6-C merely clarifies 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."

         With these observations the matter was remanded to the  High Court for fresh consideration and disposal in the light of  the observations made in the Judgment.   In the earlier part of  this judgment the Court after referring to the various decisions  summarized the legal position vis-‘-vis sales tax on turnover  relatable to packing material thus:

"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."           The deeming provision as introduced by Act No.11 of  1984 by the legislature by this interpretation was reduced to  mere insignificance.  This interpretation put the Assessing and  Appellate Authorities to the need of making elaborate  enquiries on the question whether there was an agreement  express or implied for the sale of packing material and  whether any artificial or colourable devices were adopted by  the assessee to split up the transaction so as to take the plea  that there was a separate contract for the sale of packing  material.  The State Legislature then introduced Section 6-C in  a modified form.  The following provision was substituted by  Andhra Pradesh Amending Act 22 of 1995 with effect from  1.4.1995.  The amended section 6-C reads as follows:-

"6-C Levy of tax on packing material:--  Notwithstanding anything contained in

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Section 5, Section 5-F, Section 6 and  Section 6-A, the rate of tax on packing  material sold with the goods shall be the  same as that of the goods packed or  filled, whether or not there is separate  sale or agreement for sale for the packing  material and the goods packed or filled."           In order to follow up the amendment from the revenue’s  point of view, the Entry in the First Schedule relating to  cement was amended as follows by Act 27 of 1996 with effect  from 1.8.1996:-

"S.No.    Description           Point of    Rate of    Effective               of goods                  levy            tax        from

18.     Cement:--

(a) Where the sale price        At the      16 paise  of cement includes              point of    in the          1.8.1996 the value of packing            first sale   rupee material  

(b) Where the packing  material and cement  are sold separately             -do-           20 paise  and/or the sale price                          in the       1.8.1996 of cement does not                                     rupee   include the value of  packing material"            This amendment was put to challenge by the appellants  before the High Court.  By the impugned order the High Court  has rejected the challenge and upheld the constitutional  validity of the aforesaid provision.   

Yet another step was taken by the Legislature in the year  1997 by substituting the Entry relating to containers by the  following entry dealing with the packing material of various  types.  This was done by Act 30 of 1997 with effect from  12.5.1997 in order to invigorate the charging provision read  with Section 6-C to the desired extent.  The substituted Entry  19 reads as follows:

"S.No.    Description           Point of       Rate of    Effective               of goods                  levy               tax        from

19.     Packing material that       At the point is to say Bottles of              of first sale all types whether made  in the State of Glass, Plastic or any  fibre or any other material.

(a) when sold without    -do-           4 paise in  12.5.1997 contents                                        the rupee

(b) when sold containing  \026do-       The rate at  contents                                        which the                                                                  content is                                                 liable to tax"

       Simultaneously, the State Government, in order to see  that the value of the packing materials is not taxed twice,  exercised the power conferred under Section 9(1) of the Act  and provided for set off of the tax paid on packing materials. It

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was provided that the tax levied and collected on packing  materials in respect of sale or purchase of such materials  inside the State shall be reduced from the tax payable on the  packed goods.  

       By virtue of the amendments introduced in the Act and  the Schedule the sales tax on cement is now levied at the rate  of 16% where the sale price of cement includes the value of  packing material and if the cement is sold along with separate  sale of packing material for a separate price, sales tax is  charged at the rate of 20%.  According to the appellants, the  same commodity i.e. the cement cannot be treated and made  liable to pay differential duty of tax depending upon how the  sale of cement is effected, i.e., by effecting the sale of cement  and packing material separately.   

The appellants have been showing the value of cement  and the value of the packing material separately while  preparing their bills.  The appellants’ case as set out in para 4  of the affidavit filed in support of the writ petition reads as  under:-

"The petitioner Company has been  showing the value of cement and the  value of packing material separately  while preparing the bills.  Copy of the  bills are filed herewith.  The purpose of  showing separately the value of cement  and the packing material which is used  for packing cement is only for the  purpose of claiming exemption for the  packing material as sales tax is not levied  on second sales of packing material as  per the Act.  By virtue of the Ordinance  Cement for which tax is levied is 16%  and when Cement is sold with packed  material it is 16% when billed along with  cement, and if the very same cement is  billed separately i.e., cement and packing  material it will be 20%.  That means the  same cement is liable for differential levy  of tax depending on how the bill is  prepared."           According to the appellants, the appellants sell cement in  bulk which is not packed at all.  They are loaded into special  type of wagons, and it is the loose cement which is sent  without being packed to various companies such as  Hyderabad Industries Limited who purchase large quantity of  cement in bulk in unpacked condition for the manufacture of  Asbestos Sheets and pipes.  There is no packing material as  the cement is not packed.  According to the appellants the  same cement cannot be made liable for differential levy of tax  depending on how the bill is prepared.  The same product  cannot be classified differently and charged with different  rates of sales tax.  It was further averred that there was no  distinction between the cement sold in packed condition or  cement which is sold in loose condition without being packed.   That a distinction in the rate for charging sales tax could not  be made dependent on the method and manner of preparation  of bills as to whether the cement is sold along with packing  material or the customer is billed separately for the value of  cement and the packing material.    The method of billing  would not alter the character of cement which remains one  and the same commodity.  It was also submitted that there

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was no justification for making a distinction between the  commodities in the same category.  This was violative of Article  14 of the Constitution and thus liable to be struck down.   In  support of its submissions the appellants relied upon two  decisions of this Court in Ayurveda Pharmacy Vs.  State of  Tamil Nadu, 1989 (2) SCC 285 and Vasavadatta Cement Vs.  State of Karnataka, 1996 (2)  SCC 88.   

The High Court negatived the contentions raised by the  appellants and concluded that there was nothing anomalous  or incongruous in prescribing the same rate of tax for the  packing materials as well as the goods packed irrespective of  the fact whether they are charged for  and sold separately.   There was no invidious discrimination and that the present  case was not a case in which species of the genus was picked  up for higher taxation without apparent justification.   It was  held that:

"The present case is not a case in which  a species of the genus is picked up for  higher taxation without apparent  justification. The charge of  discrimination was upheld in Ayurveda  Pharmacy’s case (supra) having regard to  the inherent nature of the commodity  and its similarity with others falling  within the same category. In the present  case, the rate of tax on cement is made  dependant on whether the sale price of  cement includes the cost of packing  materials. If the packing material cost is  shown as an integral part of the price at  which the cement was sold, it would  attract lesser rate of tax. However, if the  packing material cost is excluded from  the value of the cement, the turnover will  be less and in such an event, the  Legislature thought it fit to prescribe a  higher rate of tax. It is left to the dealer  to choose one of the courses. Different  rates of tax for the same commodity is  prescribed depending on whether the  price includes packing material cost,  obviously with a view to check tax  avoidance. Such was not the situation in  Ayurveda Pharmacy case (supra)."

       Relying heavily on the decision in Ayurveda Pharmacy  case (supra) Mr. Rajiv Shakdher, learned counsel for the  appellants contended that the same commodity i.e. cement  could not be subjected to different rates of taxation depending  on whether the cement and packing material are  sold  separately.  It was not permissible to the respondents to levy  tax at the rate of 16% when the same is billed along with  packing material and to tax the same commodity (cement) at  the rate of 20% when the cement and its packing material are  billed separately.  It was submitted that Clause B of Entry 18  of the First Schedule of Andhra Pradesh Act is discriminatory  and irrational.  It levies differential tax rate higher than 16%  on the same commodity i.e. cement depending on the fact that  the appellants have been claiming a separate sale of packing  material and thereby showing the value of cement and the  value of packing material separately while preparing the bills.   It was submitted that the discrimination is writ large on the  face of the impugned Entry in the taxation schedule and such

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discriminatory treatment was not justified.   As against this,  Mr. Anoop Choudhary, learned senior advocate appearing for  the respondent contended that the provision was not  discriminatory.  The object was to see that the tax revenue on  packing material is not lost to the State by reason of adoption  of artificial tax planning devices.  According to him Ayurveda  Pharmacy’s case (supra) was distinguishable and the  prescription of different rates of tax in the peculiar  circumstances obtained in cement and liquor trade was not  impermissible.  He strongly relied upon the decision of this  Court in Premier Breweries Vs. State of Kerala, 1998 (1)  SCC 641 in which this Court considered the provisions of sub- Sections (5) and (6) of Section 5 of the Kerala General Sales  Tax Act which according to him are pari materia with Section  6-C of the Andhra Pradesh General Sales Tax Act introduced  by Act No.22 of 1995.  

       In The Twyford Tea Co. Vs. State of Kerala, 1970 (1)  SCC 189. Hidayatullah, J. speaking for Constitution Bench  spelt out the principles governing the application of Article 14  to the taxing statutes.  It was held that the State does not have  to tax everything in order to tax something.  The state enjoys a  wide discretion in the matters of taxation and enjoys more  freedom for classifying the objects to be taxed and the rates of  taxation.  The burden for proving discrimination is always  heavy on the person who alleges discrimination and heavier  still when a taxing statute is under attack.  That the State can  validly pick and choose one commodity for taxation and the  same is not open to attack under Article 14 on the ground that  the same result must follow when the State picks out one  category of goods and subjects it to the taxation.  Relevant  portions at para 15 of this judgment read as under:-

"15. We may now state the principles on  which the present case must be decided.  These principles have been stated earlier  but are often ignored when the question  of the application of Article 14 arises.  One principle on which our Courts (as  indeed the Supreme Court in the United  States) have always acted, is no where  better stated than by Willis in his  "Constitutional Law" page 587. This is  how he put it :  

"A State does not have to tax  everything in order to tax  something. It is allowed to pick and  choose districts, objects, persons,  methods and even rates for taxation  if it does so reasonably ...... The  Supreme Court has been practical  and has permitted a very wide  latitude in classification for  taxation."  

This principle was approved by this  Court in East Indian Tobacco Co. v. State  of Andhra Pradesh (1963) 1 SCR 404 at  page 409. Applying it, the Court  observed:  

"If a State can validly pick and  choose one commodity for taxation  and that is not open to attack under

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Article 14, the same result must  follow when the State picks out one  category of goods and subjects it to  taxation."  

This indicates a wide range of selection  and freedom in appraisal not only in the  objects of taxation and the manner of  taxation but also in the determination of  the rate or rates applicable. If production  must always be taken into account there  will have to be a settlement for every year  and the tax would become a kind of  income-tax.  

16. The next principle is that the burden  of proving discrimination is always heavy  and heavier still when a taxing statute is  under attack. This was also observed in  the same case of this Court at page 411  approving the dictum of the Supreme  Court of the United States in Madden v.  Kentucky : ((1940) 309 US 83; 84 L Ed.  590)  

"In taxation even more than in other  fields, Legislatures possess the  greatest freedom in classification  The burden is on the one attacking  the legislative arrangement to  negative every conceivable basis  which might support it."  

In Khandige Sham Bhat Vs. Agricultural Income  Tax Officer, AIR 1963 SC 591, a Constitution Bench of this  Court while pointing out the taxation law is not an exception  to the doctrine of equality, clarified:

"But in the application of the principles,  the Courts, in view of the inherent  complexity of fiscal adjustment of diverse  elements, permit a larger discretion to  the Legislature in the matter of  classification, so long it adheres to the  fundamental principles underlying the  said doctrine. The power of the  Legislature to classify is of ’wide range  and flexibility’ so that it can adjust its  system of taxation in all proper and  reasonable ways".           In Ganga Sugar Corporation Vs. State of U.P., 1980 (1)  SCC 223, another decision the Constitution Bench of this  Court observed:-

"Even so, taxing statutes have enjoyed  more judicial indulgence. This Court has  uniformly held that classification for  taxation and the application of Article 14,  in that context, must be viewed liberally,  not meticulously"           Recently, in State of   W.B. Vs.  Kesoram Industries  Ltd. & others, 2004 (10) SCC 201, a Constitution Bench by a

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majority of 4:1 held that the measure/mode/machinery  employed for assessing a tax must not be confused with the  nature of the tax.  A tax has two elements: first, the person,  thing or activity on which the tax is imposed (the subject of  tax), and second, the amount of tax.  The subject of tax is  different from the measure of levy.  The amount of tax may be  measured in many ways but the distinction between the  subject-matter of a tax and the standard by which the amount  of tax is measured must not be lost sight of.  While the subject  of tax is clear and well defined, the amount of tax is capable of  being measured in many ways for the purpose of  quantification.  Devising the measure of taxation is a far more  complex exercise than defining the subject of tax and therefore  the legislature has to be given much more flexibility for  devising the measure of taxation. It was observed in para 33  as under:-

"We now proceed to enter a deeper  dimension in the field of tax legislation  by considering the problem of devising  the measure of taxation.  This aspect has  been dealt with in detail in  Union of  India Vs. Bombay Tyre International Ltd.   (1983) 4 SCC 210.  Tracing the principles  from the leading  authority of A reference  under the Government of  Ireland Act,  1920 and Section 3 of the Finance Act   (Northern Ireland) 1934, Re. 1936 AC  352, passing through  Ralla Ram Vs.  Province of East Punjab, 1948 FCR 207,  and  treading through the law as it has  developed through judicial  pronouncements one after the other, this  Court has made subtle observations  therein. It has been long recognized that  the measure employed for assessing a  tax must not be confused with the nature  of the tax. A tax has two elements: first,  the person, thing or activity on which the  tax is imposed, and second, the amount  of tax.  The amount may be measured in  many ways; but a distinction between  the subject matter of a tax and the  standard by which the amount of tax is  measured must not be lost sight of.   These are described respectively as the  subject of a tax and the measure of a tax.   It is true that the standard adopted as a  measure of the levy may be indicative of  the nature of the tax, but it does not  necessarily determine it.  The nature of  the mechanism by which the tax is to be  assessed is not decisive of the essential  characteristic of the particular tax  charged, though it may throw light on  the general character of the tax.           It was observed in para 126 as under :- "(ii) the subject of tax is different from the  measure of the levy;

(iii) merely because a tax on land or  building is imposed by reference to its  income or yield, it does not cease to be a  tax on land or building.  The income or

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yield of the land/building is taken merely  as a measure of the tax; it does not alter  the nature or character of the levy.  It  still remains a tax on land or building.   No one can say that a tax under a  particular entry must be levied only in a  particular manner.  The legislature is free  to adopt such method of levy as it  chooses.  So long as the essential  character of levy is not departed from  within the four corners of the particular  entry, the manner of levying the tax  would not have any vitiating effect;

       xxx                     xxx                     xxx

(vi) it is permissible to classify land by  reference to its user as a separate unit  for the purpose of levy of cess.  Tea  estate, as a separate category of land, is  a valid classification;"

It was further observed in para 129, sub para 3 as  under:- "(3)    The nature of tax levied is different  from the measure of tax.  While the  subject of tax is clear and well defined,  the amount of tax is capable of being  measured in many ways for the purpose  of quantification.  Defining the subject of  tax is a simple task; devising the  measure of taxation is a far more  complex exercise and therefore the  legislature has to be given much more  flexibility in the latter field.  The  mechanism and method chosen by  Legislature for quantification of tax is not  decisive of the nature of tax though it  may constitute one relevant factor out of  many for throwing light on determining  the general character of the tax."

       In State of U.P. Vs. Sukhpal Singh Pal, 2005 (7) SCALE  106, this Court has laid down that the Courts must show  judicial restraint while considering the scope of economic  legislation as well as tax legislation and unless the provision is  manifestly unjust or glaringly unconstitutional the same  should not be  interfered with.  There is always a presumption  in favour of the constitutional validity of any legislation unless  the same is set aside for breach of the provisions of the  Constitution.  Citing with the approval the decision of this  Court in R.K. Garg etc.  Vs. Union of India & Others, 1981  (4) SCC 675, it was held that every legislation particularly in  economic matters, is essentially empiric and based on  experimentation.  It cannot be struck down merely because  there is a possibility of abuse.  The same can be set right by  the legislature by passing amendments.  The Courts therefore,  should adjudge the constitutionality of such legislation by the  generality of its provisions.  Laws relating to economic  activities should be viewed with greater latitude than laws  touching civil rights such as freedom of speech, religion etc.  In Premier Breweries ’s case (supra),  a three-Judge  Bench of this Court repelled the contention of the assessee  that it was not open to the assessing authority to include the  value of the containers in the price of the liquor for the

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purpose of calculating the rate of tax as the containers were  separately billed and charged for.  Interpreting sub-sections (5)  and (6) of Section 5   of the  Kerala General Sales Tax Act  it  was held that underlying idea behind these rules is that  packed goods are to be taxed as composite units and therefore  in calculating the turnover of the goods, the turnover of the  containers will have to be included. The appropriate rate of tax  will be the rate payable on the goods and it will not make any  difference, if the containers are shown to have been sold and  charged separately. In the Premier Breweries ’s case (supra),  the assessee  sold Indian-made foreign liquor in bottles packed in cardboard  cartons.  As the  assessee charged its customers separately for  the liquor and the cartons the Assistant Collector held the  cartons to be taxable @ 8% under Entry 7 to Schedule I of the  Kerala General Sales Tax Act, 1963.  The Deputy Collector  under the Act exercising his revisional jurisdiction under  Section 35 set aside the Assistant Collector’s order and  invoking Section 5 (5) of the Kerala General Sales Tax Act held  the cartons to be taxable at the rate the liquor was taxable.   The view of the Deputy Commissioner was upheld by the  Appellate Court and the High Court.  Before this Court it was  contended  by the assessee that since the appellants had  charged, and the customers paid, for the liquor and cartons  separately, in the presence of Entry 97 in Schedule I to the Act  prescribing a specific rate of tax for cartons, the value of the  containers could not be included in the value of the liquor for  the purpose of calculating the assessee’s turnover.  It was  further contended that the sales tax  under the Kerala General  Sales Tax Act  being a single-point tax and tax having already  paid on the cartons by the manufacturers thereof, the cartons  could not be taxed again at the time of the sale of beer.     Dismissing the appeal this Court pointed out in para 6 that:

"The language of sub-sections (5) and (6)  of Section 5 is clear and unambiguous.  These two sub-sections deal with the  method of valuation of packed goods and  the rate of tax payable thereon. The rules  laid down are: (1) Where goods sold are  contained in a container or packed in  any packing material, the rate of tax  payable on the containers shall be the  same as that applicable to the goods  contained or packed. (2) This will be the  position even if price of the containers or  packing materials is charged separately.  (3) The turnover of the goods will include  the turnover in respect of containers or  packing materials in which the goods are  contained or packed. (4) The point of levy  of the tax on the containers or the  packing materials will be the same as  applicable to the goods contained or  packed. (5) If the sale or purchase of  goods contained in a container or packed  in a packing material is exempted from  tax, then, no tax shall be payable on the  sale or purchase of the containers or  packing materials in which the goods are  sold." It was then observed at Para 7 thus: "(a) "The underlying idea behind these  rules is that packed goods are to be  taxed as composite units. In calculating

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the turnover of the goods, the turnover of  the containers will have to be included.  The appropriate rate of tax will be the  rate payable on the goods. It will not  make any difference, if the containers are  shown to have been sold and charged  separately. The logical corollary to this  principle is that when the goods are  exempted from tax, no tax is leviable on  the containers. This will be the position  even when the goods and the containers  are sold and charged separately".

Further in para 8 it was observed:

"Various rates of tax have been fixed by  the Act for sale or purchase  of various  types of  goods.   If the goods are sold in  packages or  containers then  for  the  purpose of imposition of  tax, the  turnover of goods will  have to be  calculated by  the including  therein the   turnover  of     the packages or  the  containers.  The rate   of tax applicable to  the turnover  so calculated  will be the  rate payable on the goods contained      in  the containers.  It follows that if bottled  beer is sold in containers, the tax payable  on beer will be  the appropriate rate of  tax payable on the turnover calculated in   the manner  stated hereinabove.  It  has  not been found by any of the authorities  who heard the case that the carton  were  specially  provided for  protection of   the  bottles and  bottled  beer  usually  was   not  delivered  in cartons even  in cases of  bulk sales.  The argument based on  secondary packing is misconceived."  After referring to Raj Steel case (supra), it was observed  that the difficulty arising out of the restricted meaning given to  a deeming clause in Section 6-C of the A.P. Act had been  obviated by specific provisions of Section 5(5) of the Kerala Act  by providing that the turnover of the goods shall include the  turnover in respect of packing materials or containers.  It was  observed in para 16: "This difficulty  arising out  of the  restricted meaning given to the deeming  clause in Section 6-C of the Andhra Act  has been  obviated by specific provisions  of Section 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

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rate of tax payable on the goods."

Referring to the decision in Vasavadatta Cements v.  State of Karnataka, 1996 (2) SCC 88, wherein this Court had  followed the principle laid down in Raj Steel case (supra) it  was pointed out that:

"...in Vasavadatta case (supra) this  Court overlooked the marked  dissimilarity between Section 6-C of  the  Andhra  Act and  Section 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 the  Court  in Raj  Steel’s case where Pathak,  C.J. construed the deeming provisions in  Section 6-C of the Andhra Act in a  narrow sense.   Section 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."

Section 6-C as amended by Act 22 of 1995 is almost in  pari materia to sub-sections (5) and (6) of Section 5   of the  Kerala General Sales Tax Act.  Sub-sections (5) and (6) of  Section 5 of the Kerala Act reads as under:   "5. (5) Notwithstanding anything  contained in sub-section (1) or sub- section (2), but subject to sub-section (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 turnover 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 or 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".

In Premier Breweries’ case (supra), which is a three- Judge Bench case, the distinction in Raj Steel’s case (supra)  as well as in Vasavadatta’s case (supra), which are two-Judge  Bench cases, has been pointed out.  We are in respectful  agreement with the view taken by three-Judge Bench in  Premier Breweries’ case (supra), which has interpreted sub- sections (5) and (6) of Section 5 of the Kerala General Sales  Tax Act, 1963 which is in pari materia with the Section 6-C as  introduced by amendment Act 22 of 1995.          In Ayurveda Pharmacy Vs. State of Tamil Nadu, 1989  (2) SCC 285, which is the sheet anchor of the appellants’

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submission the facts were: that the appellants were  manufacturers of Ayurvedic drugs and medicines, including  Arishtams and Asavas.   Arishtams and Asavas contain  alcohol, which according to the assessee was essential for the  effective and easy absorption of the medicine by the human  system and also because it acted as a preservative. While all  other patent or proprietary medicinal preparations belonging  to the different systems of medicines were taxed at the rate of  7% only, Arishtams prepared under the Ayurvedic system were  made subject to a levy of 30%. . The appellants filed the writ  petitions in the High Court of Madras challenging the levy at  30% on Arishtams and Asavas, being violative of Article 14 as  well as Article 19 (1)(g) of the Constitution of India.  High  Court dismissed the writ petition by observing that the  imposition of the rate of 30% on the sale of Arishtams and  Asavas must be regarded principally as a measure for raising  revenue, and repelled the argument that the rate of tax was  discriminatory or that Article 19(1)(g) was infringed.    Reversing the decision it was held by this Court that the two  preparations, Arishtams and Asavas, were medicinal  preparations, and even though they contained a high alcohol  content, so long as they continue to be identified as medicinal  preparations they must be treated, for the purposes of the  Sales Tax Law, in like manner as medicinal preparations  generally, including those containing a lower percentage of  alcohol. In the said case the charge of discrimination was  upheld having regard to the inherent nature of the commodity  and its similarity with others falling within the same category.  But in the present case, the rate of tax on cement is made  dependant on whether the sale price of cement includes the  cost of packing materials. The Legislature distinguished between two categories of  sale of cement recorded by the dealer as in these two  categories there is considerable variation in the turnover base.   In the category of transactions falling in Clause (a) Entry 18  taxable turnover includes the value of the cement and the  value of the packing material.  The category of transactions  falling under clause (b) the taxable turnover includes the value  of the cement only.  It does not include the value of the  packing material.  So the turnover base under Clause (a) and  Clause (b) differs.  The turnover base under Clause (b) is  inevitably higher than the turnover base would be equivalent  to the value of the packing material.   The discrimination does  not arise for any dealer because the dealer can avail any one of  the option available in Clauses (a) and (b).  If the dealer sells  cement along with the packing material and the sale price  includes value of packing material he continues to pay tax at  the previous rate, i.e. 16%.  If the dealer opts to sell the  packing material and cement separately he has to pay tax at  higher rate i.e., 20% on cement only.    The dealer is not left  without any option. He can exercise one of the two options and  pay the tax accordingly. Moreover, as per G.O. Ms. No. 374 Rev dated 25.04.1987,  tax levied in the State on the packing material used for  packing the goods shall be reduced from the tax payable by a  dealer at the rate applicable to cements under Section 6C on  the turnover of sale of such goods and packing material.  If the  appellants purchased the packing material from any dealer  within the State and paid tax at 16% on cement under Clause  (a) he would be entitled to claim set off of the tax paid by him  on such packing material at the time of its purchase inside the  State.   High Court rightly pointed out that the imposition of  higher rate of tax in the case falling under clause (b) of Entry  18 is to check the tax avoidance measures which are said to  be rampant.  That contrary to the normal business practices

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and modalities of sale of cement, the manufacturers had  started bifurcating the price of cement and packing material to  make it to appear that there was separate sale of each of them,  so that they need not have to pay the higher tax on the  component of packing material. It is common knowledge that  the cement, barring some bulk supplies, is ordinarily sold in  packed condition, i.e, either gunny bags or HDPE bags. Going  by ordinary business practice and common sense, one does  not think of purchasing the cement and bag separately. The  agreement and the bargain would be for sale and purchase of  cement in packed condition, that is to say, together with the  container. In Hyderabad Deccan Cigarette Factory v. State of  A.P., (1966) 17 STC 624 (SC), it was observed: "In the instant case, it is not disputed  that there were no express contracts of  sale of the packing materials between the  assessee and its customers. On the facts,  could such contracts be inferred? The  authority concerned should ask and  answer the question whether the parties  in the instant case, having regard to the  circumstances of the case, intended to  sell or buy the packing materials, or  whether the subject-matter of the  contracts of sale was only the cigarettes  and that the packing materials did not  form part of the bargain at all, but were  used by the seller as a convenient and  cheap vehicle of transport." It was further held: "...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  container may be more readily implied..."

Going by what has been held in the aforesaid case the  gunny bag or the HDPE bag is used to facilitate the  transporting and marketing. The value of bag would normally  be a minor percentage of the value of cement. In such a  situation, it would be difficult to infer a separate agreement for  the sale of bags used for packing the cement.   High Court was  right in observing that the manufacturers, in order to claim  the tax benefit had resorted to the modus operandi of the sale  of containers (bags) by bifurcating the price. That when  evidence is created prima facie supporting the plea of separate  sale of packing material, it would be difficult for the taxing  authorities to establish otherwise even though the design and  purpose of creating such evidence by the process of billing  etc., is quite evident. That in every case, elaborate enquiry will  have to be made to decide on which side the transaction falls.  To obviate such uncertainties and long drawn enquiries, the  Legislature has laid down a straight formula prescribing the  rate of tax on cement dependent on the two  categories  envisaged in Clauses (a) and (b) of Entry 18.   It is  rationalization of the entries and is regulatory in nature.

If that be the situation, we do not find any basis to hold  that such classification of the same commodity is  impermissible and would amount to discrimination being

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violative of Article 14  of the Constitution of India.

For the reasons stated above, we do not find any merit in  the appeal and dismiss the same leaving the parties to bear  their own costs.